Hampered by contradictions

EU retaliation against unprecedented US tariffs is frustrated by the European bloc’s internal contradictions – despite economists saying countermeasures can hurt Trump’s America.

Apr

2025

WASHINGTON/BRUSSELS/BERLIN (own report) - Internal contradictions are hampering an EU response to the unprecedented tariffs being imposed by the United States. The first tranche of import tariffs came into force on Saturday and more are to follow on Wednesday, hitting stock markets very hard. Share prices have plummeted not only in economies that are key trading partners of the US, such as Japan and Germany, but also in the United States itself. In fact more than six trillion US dollars have been wiped out in just two days. The dollar is also weakening. President Donald Trump has made a “huge mistake” with his tariff wall, says the President of the German Institute for Economic Research (DIW), Marcel Fratzscher. Trump will, he argues, “get the short straw,” which is why he advises the EU to stand together and fight back. However, Brussels has so far showed little inclination, having postponed the implementation of retaliatory tariffs it announced not even against the latest steel tariffs but against those already imposed earlier on Europe. The backsliding results not least from objections to countermeasures by several member states that fear significant losses. Their position is that they would have more to lose than the United States in the event of an escalation. Other countermeasures targeted at US tech corporations are being considered. These, too, have so far been blocked, especially by Italy. The Meloni government maintains particularly close relations with the Trump administration.

Trillions in losses and a weak dollar

The new tariffs announced by US President Donald Trump on Wednesday have, initially at least, hit the United States itself particularly hard. US stock markets plummeted, first on Thursday and then again on Friday after the imposition by China of retaliatory tariffs to the same amount (34 per cent). The Dow Jones Industrial Average plummeted overall by 7.9 per cent, the S&P 500 by 9.1 per cent, while the Nasdaq tech index fell by as much as 10 per cent. The stock market wipe out is estimated to total over six trillion US dollars.[1] On Thursday, the Kiel Institute for the World Economy (IfW) predicted that US economic output will shrink by 1.69 per cent in real terms, a figure that does not yet factor in China’s retaliatory tariffs.[2] The banking giant JP Morgan has now raised its assessment of the global recession risk from 40 per cent to 60 per cent. American consumers are also worried about an expected rise in consumer prices. Moreover, contrary to earlier predictions, the US dollar is now weakening. As George Saravelos from Deutsche Bank Research observes, the fall in the dollar indicates waning confidence in the US economy. And the Wall Street Journal, for example, is warning that this will, in turn, have a negative impact on the willingness of international investors to hold dollar assets – a currency arrangement the US relies on.[3]

‘A tax on US consumers’

Meanwhile, there is growing unrest within the Republican spectrum of the US establishment. Just a few hours after the announcement of new tariffs on Wednesday, the US Senate voted against President Trump for the first time, albeit by a narrow majority, and rejected the punitive tariffs imposed on Canada. Although it is hard to imagine that the Senate resolution will receive the required majority in the House of Representatives, this is the first time that four Republican senators have opposed the Trump’s policy.[4] On Friday, Texas Senator Ted Cruz, who is otherwise considered a loyal supporter of the president, also adopted an anti-tariff stance. They are “a tax,” explained Cruz, “and it is a tax principally on American consumers.” It would likely push up inflation and burden the consumer with higher costs.[5] He added that, if other countries were to impose retaliatory tariffs as China had done, and this was a “very real possibility”, then there would be a “terrible outcome” for the United States. On Saturday, even Trump aide Elon Musk joined in the criticism. Making a video appearance at a conference of Italy’s extreme right-wing Lega party, he spoke out in favour of reducing the reciprocal tariffs between the US and the EU to zero.[6]

‘Trump has overreached himself’

The EU has yet to react. Nothing much has happened despite the fact that Commission President Ursula von der Leyen announced back in February that US tariffs would trigger tough countermeasures by Brussels.[7] Economists support this response and are urging firm action. Marcel Fratzscher, President of the German Institute for Economic Research (DIW), believes that Trump has “overreached himself”. The US could, he said, bring weaker opponents such as Mexico or Canada to their knees, but the Trump administration had now “taken on the entire world” and would “lose out”.[8] The EU should therefore stand together and fight back and do so consistently and steadfastly. Moritz Schularick, President of the IfW, also argues in favour of “not reacting with weakness and anticipatory obedience” but, rather, by taking a “robust” approach. “Strength is our best chance.”[9] The European Union, unlike the United States, wants to “continue trading with the rest of the world” and can “diversify” its trading arrangements. In the view of the IfW, “counter-tariffs” enforced by the EU can “hurt the Americans much more than they hurt us”. The think-tank also predicts that inward investment into the US is becoming less attractive because Trump’s policies create a climate of uncertainty. Investments in the EU may become more attractive as Berlin and Brussels create new incentives “with the billions in defence spending”.

Consequences of a big trade surplus

Countering this push for action, there is massive pressure from various business sectors on Brussels to refrain from harsh countermeasure. Many companies fear massive losses due to the trade imbalances in their industries. Last year EU member states exported goods worth 531.6 billion euros to the United States, but imported goods worth only 333.4 billion euros from there. So in terms of physical goods, European economies are potentially faced with significantly greater losses than the US in the event of a trade war.[10] Italy’s Foreign Minister Antonio Tajani recently put strong pressure on EU Trade Commissioner Maroš Šefčovič to remove US whiskey from the list of goods planned to be subject to retaliatory levies. Whiskey had been selected because it hits those states in the US where Trump’s voter base is influential. Tajani pointed out that the American President was threatening to retaliate to any tariffs on US whiskey with counter-tariffs of 200 per cent on alcoholic beverages from the EU. With the EU economies exporting a much higher volume of alcoholic drinks to the US than they import from the US there is a risk of major losses. The European Commission now intends to present a revised list on Monday, which is then to be adopted on 15 April but not come into force until 15 May.[11] Objections to retaliatory tariffs have also come from the German pharmaceutical industry since a quarter of its total exports go to the US. Pharmaceutical products have so far been exempt from US tariffs.

The transatlantic far right

Even the debate on measures against US tech companies such as X appears to have become deadlocked due to internal contradictions in the European bloc. Hitting big tech is seen as a potentially powerful alternative to the problematic counter-tariffs on goods because the US has a major trade surplus in services, which makes it more vulnerable. In 2023, EU exports of services to the United States were worth 319 billion euros, while services flowing in the other direction were valued at 427 billion euros.[12] There is also the question of financial penalties for unfair practices. The New York Times reported last week that Brussels is planning to impose a fine of more than one billion euros on X as part of proceedings initiated back in 2023 against violations of the Digital Services Act.[13] Independently of this, the EU is considering strong action against US tech companies under a new Anti-Coercion Instrument. However, this move is currently being obstructed by Italy, which has formed a blocking minority in alliance with Hungary and Romania, among others. Italy’s far-right Prime Minister Giorgia Meloni is politically very close to the Trump administration. Trump aide Musk spoke at the weekend via video link to a conference of the Lega party of Italian Deputy Prime Minister Matteo Salvini. Rome has so far managed to prevent the EU from taking action against US tech companies.[14] However, Italy’s high level of debt does make Meloni’s government susceptible to pressure from Brussels.

Hampered by contradictions

EU retaliation against unprecedented US tariffs is frustrated by the European bloc’s internal contradictions – despite economists saying countermeasures can hurt Trump’s America.

Trillions in losses and a weak dollar

‘A tax on US consumers’

‘Trump has overreached himself’

Consequences of a big trade surplus

The transatlantic far right

Latest

History

Archive

Info