Trump Is Threatening Europe With Tariffs. Is It Ready?

 

Trump Is Threatening Europe With Tariffs. Is It Ready?

 

The incoming president promised “tariffs all the way” unless Europe bought more U.S. oil and gas. European officials have no clear strategy for avoiding a trade war.

 

Jim Tankersley Jenny GrossLiz AldermanMelissa Eddy

By Jim TankersleyJenny GrossLiz Alderman and Melissa Eddy

Reporting from Washington, Brussels, Paris and Berlin

 

Dec. 20, 2024, 3:18 a.m. ET

https://www.nytimes.com/2024/12/20/world/europe/europe-trump-tariffs.html

 

President-elect Donald J. Trump’s threats of tariffs on allies and adversaries alike have unsettled companies and governments across Europe, setting off a scramble for what they fear could be a trans-Atlantic trade war.

 

Their nascent plans, including a closely guarded effort at the top levels of the European Commission, appear to be more proactive than what they were the first time Mr. Trump took office. But any attempt to form a united front on trade could be hampered by the sclerotic politics across much of Europe.

 

The French and German governments both collapsed this month. Austria and Belgium are struggling to form governing coalitions long after their most recent elections.

 

And no clear consensus has emerged on how to respond to whatever Mr. Trump might have in store. Divisions are already emerging between officials who favor a strategy of retaliation if he tries to impose new taxes on European exports and those who favor negotiation.

 

In a post on Truth Social early Friday, Mr. Trump said he had “told the European Union that they must make up their tremendous deficit with the United States by the large scale purchase of our oil and gas. Otherwise, it is TARIFFS all the way!!!”

 

Economists warn that trade wars generally hurt all parties involved, clogging the exchange of goods and services and reducing economic growth. But the weakness of Europe’s economy since the start of the pandemic — and the political turmoil — could leave it particularly vulnerable to damage now.

 

In this year’s presidential campaign, Mr. Trump said he would impose a new tax of 10 or 20 percent on all imports to the United States, regardless of their origin. Along with the vague threats to target Europe on Friday, he also issued direct warnings for Mexico, Canada, China and several emerging-market countries since his election.

 

Any such tariffs would endanger what is effectively the largest trading relationship for both the United States and the European Union, which traded more than $1.5 trillion in goods and services in 2023. Last year, the United States had a trade deficit with Europe, importing slightly more from the countries than it exported to them. Europe is already one of the biggest buyers of liquefied natural gas from the United States, which is the world’s largest supplier.

 

During the first Trump administration, Mr. Trump imposed tariffs on steel and aluminum from European countries, pledging to reduce the trade deficit. Instead, the gap grew.

 

As Mr. Trump threatens new tariffs around the world, executives and political leaders across Europe also worry about absorbing aftershocks of any escalation in trade tensions between the United States and China. Those could divert a wave of low-cost exports from U.S. stores to those in Europe.

 

Officials in Brussels and national Parliaments are beginning to brainstorm possible retaliation or alternate strategies that do not involve taxing Americans.

 

The early effort within the European Commission, the administrative arm of the European Union, includes analyses of what impact certain tariffs would have on different European countries and sectors, according to a senior European diplomat, who spoke on condition of anonymity given the political sensitivity of the conversation. The group is discussing what American products to potentially target for tariffs in retaliation.

 

But the discussions are preliminary, as are similar preparations in Berlin and elsewhere. That’s largely because Mr. Trump’s trade plans remain opaque.

 

 

European Commission trade officials have not communicated with member states about a possible response, in part out of fear of appearing to want to proactively impose tariffs on America, said three European diplomats who spoke on the condition of anonymity given the sensitivities.

 

One theory is that the European Commission could act as it did during the first Trump administration in 2018, when it implemented retaliatory tariffs on $3.2 billion of goods made by companies in areas where Mr. Trump had strong support. That included tariffs on motorcycles by Harley-Davidson, based in Wisconsin, and on other products including bourbon, playing cards and orange juice.

 

Ignacio García Bercero, a former trade director at the European Commission, said officials should offer to increase imports from the United States, especially in energy and defense, as part of negotiations with Mr. Trump to avoid tariffs. At the same time, the European Union also needs to be ready to implement retaliatory tariffs.

 

“Any strategy needs to include both elements,” said Mr. García Bercero, a fellow at Bruegel, a research firm in Brussels. “Otherwise we would not be credible in a negotiation.”

 

European officials have already floated a plan to increase imports from the United States, including of liquefied natural gas, to placate Mr. Trump. Christine Lagarde, the president of the European Central Bank, suggested a similar move in late November and warned against retaliatory tariffs.

 

Another idea is to appeal directly to Mr. Trump’s top team about how European companies have U.S. factories and to explain how any tariffs could force them to shrink their U.S. workforces, said two European diplomats speaking on the condition of anonymity given the sensitivity of the subject matter. Although German officials and business leaders tried that approach during Mr. Trump’s first administration, it did very little to protect them from his tariffs.

 

European companies are already weighing whether to shift production or parts of their supply chain, while pressing for a continental response to kick-start their competitiveness.

 

Patrick Martin, the president of Medef, France’s biggest business trade group, said that French exporters were looking at ways to protect themselves from higher tariffs that could make it harder to compete in America or with Chinese rivals.

 

“We are obviously not indifferent to the announcements of Donald Trump and his team,” he said. “Europe must not bow down but assert its power and capabilities.”

 

Mr. Martin said that the reaction of French companies to tariffs would differ depending on their sector and size. Thirty-eight of the largest 40 French companies have production facilities in both Mexico and the United States, including automakers like Stellantis and Renault-Nissan, the cosmetics giant L’Oréal and the Danone food group. Some could try to shift production to the United States, a move that would dovetail with Mr. Trump’s stated goal for tariffs.

 

The French company Airbus, the largest commercial airplane manufacturer, which has a plant in South Carolina and works with suppliers in Mexico, said last month that it would pass along any new tariff costs to its airline customers.

 

Others in France, such as producers of Burgundy wine, can’t move production to the United States and will bear the brunt of any tariffs, Mr. Martin said.

 

Christian Diemer, a top official of the German trade group BDI who owns a business making special screws in Ohio and in Europe, said that he was more concerned about American tariffs on China. If U.S. tariffs pushed a new wave of Chinese products toward Europe, it would further hurt European companies already struggling with energy prices that are two or three times as high as they are in the United States, he said.

 

Some executives are betting that a strong U.S. dollar would offset the impact of tariffs on European goods. When the dollar’s value is high compared with other currencies, Americans are able to buy more easily imported goods, which effectively become cheaper.

 

Others are hoping that if Mr. Trump imposes tariffs, they may be able to negotiate exemptions.

 

Mostly, business groups are warning their members to brace for what could be ahead.

 

“Companies need to be proactive and run through different scenarios for their business planning — now,” the Chamber of Commerce and Industry for Munich and Upper Bavaria, in Germany, recently told its members.

 

Jim Tankersley writes about economic policy at the White House and how it affects the country and the world. He has covered the topic for more than a dozen years in Washington, with a focus on the middle class. More about Jim Tankersley

 

Jenny Gross is a reporter for The Times covering Europe and other topics. More about Jenny Gross

 

Liz Alderman is the chief European business correspondent, writing about economic, social and policy developments around Europe. More about Liz Alderman

 

Melissa Eddy is based in Berlin and reports on Germany’s politics, businesses and its economy. More about Melissa Eddy