'Most challenging situation’ for transatlantic relations as Trump threatens EU with tariffs

Key Concepts

• EU-US Trade Deal: A recently negotiated free trade agreement between the European Union and the United States, currently pending ratification by the European Parliament.
• Anti-Coercion Instrument (Trade Bazooka): A newly developed EU mechanism allowing for retaliatory measures against countries using economic pressure.
• Tariff Escalation: The potential for a tit-for-tat exchange of tariffs between the US and EU, leading to a trade war.
• Transatlantic Relationship: The overall political and economic relationship between Europe and the United States, currently facing significant strain.
• National Interests vs. Collective Action: The tension between individual EU member states prioritizing their own trade relationships with the US and the need for a unified EU response.

EU-US Trade Relations: A Precarious Balance

The interview focuses on the uncertain future of the EU-US trade agreement and the escalating tensions between the two economic blocs. The deal, concluded last year in response to potential US tariffs, is currently awaiting approval from the European Parliament, with a vote originally scheduled for the current week. Kasan Abraenski, Global Head of Macro for ING Research, emphasizes that the deal’s fate “clearly stands or hangs in the balances.”

US Tariff Threats and EU Response

The discussion centers around the possibility of the US imposing tariffs, potentially targeting individual EU member states. While theoretically possible, singling out specific countries is “practically very hard to do” due to the EU’s unified customs border. However, Abraenski warns that the lack of constraints on the US administration raises concerns about broader tariffs being imposed on the entire EU. He notes that Europe will be questioning “how reliable is the US still when doing these agreements.” Donald Trump’s recent singling out of countries like France and Germany, including those that sent troops to Greenland, is cited as evidence of this unpredictable behavior.

EU Unity and Divergent Interests

A key point raised is the question of EU unity. While the EU appears more united than it was last year, Abraenski highlights the potential for individual national interests to undermine a collective response. He explains that countries like France are less reliant on trade with the US compared to Germany, creating a potential divergence in priorities. The success of a unified EU response hinges on member states being willing to “leave their national interests in trade with the US behind.”

EU Retaliatory Measures: The "Trade Bazooka"

The interview details the tools available to the EU should the US impose further tariffs. A pre-negotiated list of approximately €100 billion in tariffs on US goods, suspended as part of the initial agreement, could be reactivated by February. More significantly, the EU has developed the “anti-coercion instrument,” dubbed the “trade bazooka.” This instrument, never before used, grants the European Commission broad authority to implement counter-tariffs, limit investments, impose export controls, or even intervene in intellectual property rights. Abraenski stresses that to inflict significant economic harm on the US, the EU would need to focus on tariffs targeting digital services, as the US currently holds a trade surplus in goods with the EU.

US Retaliation and Transatlantic Risk

The discussion acknowledges the US’s ability to retaliate, particularly given the EU’s greater dependence on the US in areas like financial services (e.g., Visa transactions) and big tech. Abraenski warns that Donald Trump “could play dirty if he wanted to,” making the current situation “much riskier than where we were last summer.” He emphasizes that the conflict extends beyond trade, placing “enormous unknown stress on the transatlantic relationship,” potentially representing the “most challenging situation for the transatlantic relationship since the end of World War II.” He cautions against an “escalating spiral” of tit-for-tat measures, stating that “there are no winners in trade wars. Trade wars only know losers.”

Notable Quote:

“If you don’t watch out, we’re really in the midst of an escalating spiral with a tit for tat. And then there is no end to how much harm each party or each side could do to the other side.” – Kasan Abraenski

Conclusion

The interview paints a concerning picture of the EU-US trade relationship, characterized by uncertainty, potential for escalation, and the risk of significant economic harm to both sides. The fate of the current trade deal remains uncertain, and the EU faces the challenge of maintaining unity while navigating the unpredictable actions of the US administration. The situation represents a critical juncture for transatlantic relations, with the potential for a damaging trade war looming large.