A roadmap to navigating Trump’s tariffs

Arancha González is dean of the Paris School of International Affairs (Sciences Po) and former foreign minister of Spain.

Europe has been down this road before: In 2017, the tariffs imposed by then-U.S. President Donald Trump took the bloc by surprise. Not that he hadn’t announced them — he had. Rather, the EU didn’t want to believe Trump would be ready to shoot himself in the foot.

We overestimated his economic rationality.

This time around, the EU runs the risk of underestimating the impact of Trump’s tariffs. The bloc is assuming it’ll be just like last time, when it managed to negotiate exclusions and limit the negative effects of Washington’s trade policies. 

To begin with, the touted percentages are much higher this time: 60 percent tariffs on China, and between 10 to 20 percent on imports from all other sources. Needless to say, these will be inconsistent with U.S. obligations under the World Trade Organization (WTO) Agreements.

Meanwhile, most of the appointments to Trump’s new administration so far seem to privilege loyalty. Thus, the only constraining factors will be the behavior of the stock market — the one signal Trump always pays attention to — and the old Wall Street hands he’s earmarked for the Department of Commerce and the Treasury.

Europe, for its part, has just gone through an inflationary period, which has been incredibly costly both economically and politically, making the risks higher than before. Moreover, the EU isn’t just facing the impact of U.S. tariffs, it will also be dealing with the diversion of trade from other affected nations — China in particular.

A Republican friend recently told me not to even bother arguing that tariffs are useless when it comes to reducing the U.S. deficit, to bringing jobs back to America or to re-industrialize the country. Trump will impose tariffs regardless. The EU would, of course, prefer this wasn’t the case, but that’s wishful thinking. And no matter what, the bloc needs to remain cool, calm and collected, and it must be ready to respond.

To begin with, the touted percentages are much higher this time: 60 percent tariffs on China, and between 10 to 20 percent on imports from all other sources. | Stringer/Getty Images

To that end, I advise following a four-pronged strategy:

First, let’s try persuasion. The best course of action will be to negotiate in order avoid tariffs in the first place, and there are many possible ways to do this: It could be through the purchase of more LNG or defense equipment. The bloc could also find room to maneuver by reducing its “Most Favoured Nation” tariffs, nuisance tariffs on select products of interest or the regulatory burden on specific products. Both sides could work to facilitate bilateral trade, including building an alliance to support the transatlantic electric vehicle (EV) sector — after all, given the investments already made by auto producers on both sides of the Atlantic, changing course on the EV sector would be costlier than joining hands — and a big beneficiary of this would be Tesla.

Obviously, not everything is up for a negotiation though. Just like the U.S. has Congress, which is sovereign to legislate, the EU has the European Parliament, which has the mandate to legislate with the interest of its citizens at heart. And to that end, it’s easy to see that tech regulation in Europe won’t be for sale.

But there’s nothing better to focus a negotiation than dissuasion, and the EU should start preparing for retaliation now, should the negotiations fail. The products to be added to a possible sanctions list are already well-known from previous episodes and should be ready to use. Depending on the severity of the threat, dissuasion could also take the form of a negative list, i.e. all products except those where the EU has specific interests or dependencies.

Then, if there’s no agreement, the bloc should move to retaliation, which has actually happened before. While we know that “an eye for an eye makes everyone blind,” Europe has to protect its interests. And it can choose to do this gradually, to maintain space for a possible negotiation; or it can do so in one go, depending on the U.S.’ attitude.

Finally, the EU must prioritize alliances. It can coordinate all these measures with its trading partners around the world who will be facing the same difficulties. It should start with those highly integrated with the EU market, like the U.K., Switzerland and Turkey. And to avoid a global downward spiral, all countries affected by Trump’ tariffs, including China, could agree to abstain from applying tariffs on each other, thus avoiding beggar-they-neighbor policies — a powerful signal that these countries still care about the WTO’s rules and principles and repudiate unilateralism.

Now that friendshoring is dead, long live good old international trade.