Much is at stake in the negotiations that European Union trade commissioner Maros Sefcovic is conducting this week in Washington. If they fail, the U.S. and the EU could be destined for a destructive series of tit-for-tat retaliations that will harm business, innovation and prosperity on both sides of the Atlantic.
As former Director-General for Trade at the EU and former U.S. Ambassador to the EU, we have often crossed swords as each of us tried to promote our government’s interests in the ultimately unsuccessful efforts to negotiate a transatlantic free trade agreement from 2014 to 2017. But today we are united in our objection to the Trump administration’s unjustified threat of tariffs on EU exports based on a mischaracterization of transatlantic trade and a misunderstanding of the bloc’s ability to defend itself.
President Trump evidently believes that the EU treats America very badly in trade and that the U.S. trade deficit toward the EU is proof of that. He has repeatedly claimed, falsely, that the U.S. trade deficit amounts to between $300 and $350 billion. The trade deficit in goods is actually about €150 billion, but America runs about a €100 billion surplus in services trade, meaning that the overall trade deficit is only about €50 billion — not enormous compared to overall transatlantic trade and indeed far smaller than the U.S. trade deficit with China.
In any event, trade deficits are not proof of “cheating” by other countries; they are largely a reflection of macroeconomic factors, including a lack of savings and excessive spending in the U.S., and a lack of investment in Europe.
Trump repeatedly states, again falsely, that the EU remains nearly shut to U.S. exports and that the American market remains totally open to its exports. The arithmetic average of applied tariffs is 2.7 percent for the U.S. and 2 percent for the EU. But a more meaningful measure is the weighted average tariff rate: this measure takes the average of duties applied and weights them by the share each product represents of total imports. That tariff is 1.5 percent for the U.S. and 1.3m percent for the EU. The debate about tariff rates, however, is ultimately meaningless as the rates are already so low (except for some tariff peaks).
It is true that the EU market remains protected with tariff and non-tariff barriers in some critical sectors, especially agriculture. These sectors have been the source of major frictions in the past, including the agreement we tried to reach. But the U.S. is no saint, either. The Trump administration conveniently fails to recognize significant U.S. protections in numerous areas, such as public procurement, maritime services, telecommunications and, yes, also agriculture. The EU has tried and failed repeatedly to get the U.S. to open these sectors as part of a wider market-opening deals.
Trump often points out that the EU’s 10 percent tariff on cars imported from the U.S. far exceeds the U.S. 2.5 percent tariff on cars from Europe. What he conveniently fails to mention is that the U.S. imposes a 25 percent tariff on light trucks from the EU, whereas the EU’s rate is only 10 percent. More importantly, it is questionable whether the higher tariff rate on American cars explains why European consumers don’t buy more U.S. cars; a more likely reason is that those cars are not well suited to European consumers’ needs.
The Trump administration appears to think that Europe, including the EU, is weak and divided and therefore incapable of defending itself. The president has often said that trade wars are “great and easy to win.” While he is correct that trade represents a far larger percentage of GDP for Europe than for the U.S., his conclusion is mistaken.
The EU is not a superpower in the traditional sense, but it continues to have significant power in the area of foreign trade. Crucially, the bloc now has far more potent trade tools, including to retaliate against unjustified tariff threats, than it did a few years ago.
One weapon in the EU’s arsenal is the Anti-Coercion Instrument, which entered into force at the end of 2023. That legislation allows the EU to respond to a third country’s efforts to coerce the EU into preventing, ceasing, modifying or adopting a particular act by the bloc or a member state. Coercion of the EU with the threat of tariffs to unilaterally drop its own tariffs, or to annul or fail to enforce key legislation against U.S. digital platforms, could be considered as justifying the use of the legislation.
The Anti-Coercion Instrument also allows the EU to target specific individuals and companies — such as Elon Musk and Tesla — that are acting on behalf of, or under the direction or instigation of, the U.S. government. While the law requires the European Commission to pass implementing measures for qualified majority approval by the member states — admittedly not a speedy process — Washington should not assume that this is implausible.
Another powerful tool in the EU’s arsenal is the International Procurement Instrument. This allows the European Commission to restrict access to companies from non-EU countries in EU public procurement tenders when those countries exercise restrictions to their own public procurement markets. As America restricts such access in several material ways, the EU could look to limit U.S. firms’ access to a market worth about €2 trillion.
There is a rich menu of other measures that the EU could take that go beyond the pin-prick retaliations the bloc applied in a mere three weeks in 2018 against Kentucky bourbon, Wisconsin’s Harley-Davison and Midwestern corn. Other measures against Republican states could be envisaged, including tariffs on beef and restricting the U.S. provision of services to Europe.
Nothing would prevent the EU from imposing “out of the box” measures such as a tax on U.S. tourists visiting Europe. Since tariff threats come on top of American withdrawal from the multilateral accord on international taxation, some EU states might reimpose digital taxes on U.S. platforms. The effect of EU measures would be enhanced if the bloc were to join Canada, Mexico and Japan in a coalition to exchange information and coordinate retaliation.
Negotiations are usually preferable to a show of force. During the first Trump term, the EU managed to avoid American tariffs by offering Trump a “deal” that he publicized as a huge win: the European Commission would buy more soybeans and liquified natural gas from the U.S. The fact that purchases from Europe were already trending upward and that market operators, not the European Commission, make purchasing decisions were conveniently left unmentioned. More importantly, European Commission President Jean-Claude Juncker and Trump agreed to work on zero tariffs for industrial goods. In spite of a mandate, still valid today, given by the EU Council of Ministers to the European Commission, this negotiation never took off because the U.S. wished to add agriculture, which was not mentioned in the joint statement.
Perhaps a repeat of that performance is possible. And perhaps there is a way for the EU to offer some concessions, including on auto tariffs.
Even better would be a serious discussion about how the U.S. and EU can win together by opening their markets and focusing on the real threat, which comes from China. But if you’re sitting in a Wild West saloon where your erstwhile partner believes that might makes right, it might seem better to have a loaded pistol on the table — and to show that the chamber is full of bullets.
Jean-Luc Demarty served as Director-General for Trade of the European Commission from 2011 to 2019. Anthony Gardner served as U.S. ambassador to the EU from 2014 to 2017.
