July 14, 2025 - 3:00pm
Donald Trump has now introduced a 30% general tariff on imports from the European Union, effective next month. The continent is in shock, but the pause on retaliatory tariffs announced yesterday by Ursula von der Leyen is a wise move. Really, any counter-measures from Brussels would be disastrous.
These new tariffs are higher than those proposed in April. Trump’s European opponents keep underestimating him, and the outcome is a set of measures which are far more damaging than the initial 10% general tariff. There is no shortage of hotheads within the EU policy sphere who are advocating retaliation, and von der Leyen is receiving conflicting messages from member states. Friedrich Merz has predicted catastrophic consequences for the German economy, and is urging Brussels to negotiate further. Meanwhile, Emmanuel Macron and other leaders are pushing for a tougher response.
EU trade ministers are now weighing up counter-tariffs, but retaliation threats only make sense if they are for real. This isn’t a game of poker. It is not in the interest of Brussels to retaliate, and therefore it should not make threats to this end. Any fightback would prompt America to respond in kind, and Europe would end up in a trade war with tariffs of 50% or higher — a level at which transatlantic trade would collapse. As the euro rises, Brussels is facing multiple trade shocks — from US tariffs, as well as cheaper imports from the rest of the world including China.
All of this makes a costly economic accident far more likely. China’s strong reaction to the April tariffs impressed EU commentators, who were persuaded to advocate similar retaliation. However, the situation with America and China could not be more different. The US has signalled readiness to cut a deal with Beijing because it depends on imports of Chinese rare earth magnets, for which it has no replacements. Europe will struggle to pull off a similar stunt. For a start, the EU has nothing on which the US is nearly as dependent. Gucci handbags, BMWs and champagne are nice luxuries, but hardly existential resources. And a crackdown on US digital companies is less of a threat than it would appear, because the EU has no alternative suppliers.
Brussels also has to be mindful of the broader security implications of a trade war. It cannot boycott F35 purchases or deliveries of ASML semiconductor manufacturing machines, given the impact on national security. Given Europe’s dependence on the US for protection, there is unlikely to be a situation in which strong trade retaliation yields a positive outcome. The best response would be to take the tariffs on the chin, and instead focus on long-term strategic decisions.
One such decision would be to reduce the EU’s dependence on export surpluses for growth, which constitutes the bloc’s single biggest geo-economic vulnerability. Another move would be to lead a global “coalition of the willing” to agree a new multilateral trade system. Of course, this is easier said than done. Brussels is in its current unfortunate position because it keeps kicking the can down the road. The export dependency was a policy which started with the eurozone’s sovereign debt crisis, while the adverse effects of Europe’s dependence on the US were also recognised a long time ago. Now, it’s all coming together.
This is an edited version of an article first published in the Eurointelligence newsletter.
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