At first glance, Trump’s ideas for his administration’s future trade policy with the EU might seem easy to discern. The now president-elect has repeatedly declared that the EU would have to pay a “big price” under what he called the “Trump reciprocal trade act”, which threatens to impose a 10-20% tariff on all imports (the current US average is 3.3%).
However, be it because of his almost pathological tendency to lie, or him changing his mind on a whim, taking the tycoon at his word has always been naïve at best, and trade policy is no exception. Therefore, I hope it will be excused if, instead of simply stating my forecasts on the matter, I keep the door open to two other possible scenarios.
All a Bluff?
While the possibility that the “reciprocal trade act” is simply pandering to Republican constituents cannot be completely ruled out, this is unlikely for a number of reasons including Mr Trump’s worldview: it is clear from his speeches and his behaviour while in office that he views trade as a zero-sum game, where the success of a nation with respect to another can be measured through their balance of trade. This perspective laid the foundation to his first administration’s trade wars. The party establishment cannot be expected to be able to rein in Trump as much during this second mandate, since the people who antagonised him during his first mandate and did not repent in time have tended to lose their seats.
Going All-in
Should we, therefore, expect a trade war on day 1? Some elements might point in this direction. The Trump that won the elections three weeks ago is not the same man who was elected in 2016. He has shown time and again, both through speeches and actions, that he does not even pretend to care about norms or relationships with allied nations anymore. It could even be argued that such a move would cement his popularity among his voter base, who would see him as an “assertive” leader who fights for their interests.
Although not that far-fetched, this scenario is unlikely too. Such a move is likely to incentivise trading partners into coordinated reprisals, which can potentially be far more damaging to the US economy. Even more importantly, such a sudden increase in tariffs might trigger a new surge in inflation, which is often used by voters to gauge a government’s effectiveness.
The Art of the Deal
This leaves us with the third option. Mr. Trump has always styled himself as a “dealmaker”, and this idea has been a silver lining throughout his time in power (renegotiation of NAFTA, talks with North Korea, withdrawal from the JCPOA). It is not implausible that he will initially retain a similar approach and use tariffs as leverage in negotiations with the European Union to lower both European tariffs and technical barriers in fields such as agriculture and car manufacturing, which apart from having asymmetric tariffs, are also dear to key Republican electorates. Former members of the Trump administration also suggest that he might try to negotiate with each single member state, instead of the EU as a whole ,although the feasibility of such a strategy is debatable, as trade policy is an exclusive EU competence.
What should the European Union do?
At this point, the EU needs to be ready to play the game by Trump’s rules. The Commission needs to sit at the negotiation table with a clear strategy for retaliations in case an agreement cannot be reached, since it is evident that concrete consequences are the only way to persuade Trump. This will not be an easy negotiation, chiefly because American LNG has become paramount to the European economy since 2022; however, newly introduced tools such as the Anti-Coercion Instrument might leave some bargaining power to the 27.
If the negotiations were to fail, the EU would need to retaliate: a symmetrical retaliation, however, might turn out to be economically suicidal. The countermeasures would need to be “much more sophisticated” and possibly be aimed at the economic sectors of the states who supported Trump. It might be argued that this last point is unfair since it advocates for the weaponisation of trade. The answer to that is: it is, and, when dealing with someone that considers playing fair a sign of weakness, it might prove to be absolutely necessary.
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