Analysis: The Tariffs’ Storm and the Way Forward for the EU

An analysis by George N. Tzogopoulos

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Introduction

The beginning of Donald Trump’s second presidency is paired with proposed policy changes in several fields. From the conflict in Ukraine and the Middle East to governmental spending and diversity, equity, and inclusion (DEI) programs President Trump seeks to implement his pre-election agenda in a dramatic overhaul of previous policies. He is hopeful of ‘Making America Great Again’ by making decisions the wisdom of which is challenged not only by his political opponents in the USA but also by several countries in the world, scholars, and analysts. The trade sphere constitutes no exception in his strategy. President Trump insists on the necessity of tariffs having said that ‘tariff is the most beautiful word in the dictionary’. The perceived objective is to open the door for new trade agreements with other countries and address imbalances, put pressure on companies to invest in the USA and reshore manufacturing, raise revenue and finally lower costs for consumers.

In endeavoring to upend the global economic order President Trump does not consider the EU as a partner – neither values its role in the world. Although this attitude became evident during his first administration, it is currently reaching a new height. In the end of February 2025, he said to reporters that ‘the EU was formed in order to screw the US’. The EU responded to the comment by reiterating that it is the world’s largest free market and ‘has been a boon for the US’. Last year (in 2024), the EU exported €531.6 billion in goods to the USA (5.5% up in comparison to 2023) and imported €333.4 billion (4% down in comparison to 2023) resulting in a €198.2 billion surplus. The USA was the largest partner for EU exports of goods (20.6%) and the second largest partner for EU imports (13.7%) preceded by China.

In Search for Some Clarity

The analysis of President’s Trump tariff plan and its impact on the EU is particularly complicated for two main reasons. The first is that this is an evolving story. And the second, and perhaps more important, is that flip flopping about tariffs and the rate of tariffs as well as about the exemption of some goods from these tariffs seems to become the new normal. Until mid-April 2025 President Trump announced three different rounds of tariffs affecting European goods (along with goods from other countries imported by the USA). On 10 February, he reinstated the full 25% tariff on steel imports and increased tariffs on aluminum imports to 25%. On 26 March, he imposed a 25% tariff on imports of automobiles and certain automobile parts. And on 2 April, the ‘liberation day’ in his own words, he announced a 20% tariff on imports from the EU (and different levels of tariffs for other countries).  Several products such as metals, medicine, wood etc. were exempted. Also, the list of exemptions is being constantly changed or updated – and this makes economic calculations hard.   

The reaction of international markets to the announcement made on the ‘liberation day’ was cataclysmic. The US, European and Asian stock markets tumbled. Also, the US dollar suffered its biggest drop since 2022, while treasury yields increased because investors did naturally raise questions on the reliability of the American bond market.  In response to the chaos his aggressive trade policies caused, President Trump made a U-turn on 9 April and suspended the implementation of his previous decision for 90 days for all countries apart from China.  Subsequently, the tariff rate for the imports of EU goods by the USA was reduced to 10% (from 20%).  At the writing, the levy of 25% on steel, aluminum, automobiles and automobile parts remains in effect, whereas economic volatility prevails. As vice-President of the European Commission Stéphane Séjourné said: ‘the only certainty is that instability will remain for the next four years’

The EU and the Greek Perspective

The EU welcomed the pause of 90 days but will not refrain from applying countermeasures in the future. Indeed, it has already drafted a plan with countermeasures, which will reportedly include tariffs  worth around €22.1 billion on the import of US agricultural and industrial commodities. President’s Trump announcement of 9 April put the plan on hold even if some tariffs (on steel, aluminum and automobiles) are already in place. Generally speaking, the EU mainly exports medical and pharmaceutical products, road vehicles and industrial machinery and electrical machinery to the USA. It imports petroleum and petroleum products, medicinal and pharmaceutical products and power-generating machinery and equipment, and natural gas.

The EU disagrees with the position of President Trump that his introduced or proposed tariffs are the result of unfair treatment of the USA by third parties leading him to demand reciprocity. A CATO study based on trade-weighted average duty rates from the World Trade Organization (WTO) in 2023 shows that tariff rates in most countries are much lower than he says. In the case of the EU there is a huge difference indeed. The levy on US exports was only 2,7% last year according to the CATO report as opposed to the 39% rate the US President referred to on ‘liberation day’. Trade tensions with the USA are damaging transatlantic relations, whereas they have the potential to derail European economic plans. Governor of the Bank of Greece and member of the executive board of the European Central Bank (ECB) Yannis Stournaras said in an interview with the Financial Times that  likely higher inflation and a global trade war could delay normalization of Eurozone monetary policy and worsen financial conditions and growth momentum.

In 2024, Greece exported €2,4 billion in goods to the USA (17^th largest exporter in the EU) and imported €2.1 billion (15^th largest importer in the EU). Τhe USA was the fifth largest market for Greek exports preceded by Italy, Germany, Cyprus and Bulgaria – and Greek exports to the USA made up less than 5 percent of the country’s total exports. Goods exported to the USA last year included petroleum products, fruits and vegetables, aluminum, cement, aircraft equipment, olive oil and olives, and dairy products. Greek producers exporting goods not exempted in the US tariff list will have to reckon the potential response of American consumers and perhaps adjust prices or expect a compromise between the Greek and the American administration. Further to this, a fall in the US consumer sentiment caused by the erratic attitude of President Trump will possibly impact on spending of American tourists in Greece, the number of which exceeded 1.5 million in 2024. Last but not least, Greece is concerned about broader economic repercussions in the Eurozone and in the global supply chain in a period during which the national economy has demonstrated signs of solid recovery. One month before the tariff storm Moody’s had upgraded the country to investment grade.

What is Next?

The world economy has entered a phase of strong turbulence because of President’s Trump emphasis on tariffs and the lack of clarity about his ultimate intentions.  Although any prognosis under current circumstances is hard, the EU and the USA do need each other. Cooperation between the two is still possible but requires careful diplomacy and compromises. In July 2018, for instance, Presidents Donald Trump and Jean Claude Juncker identified areas of joint cooperation despite trade tensions. Already some ideas to break the ice and start constructive negotiations have entered the public agenda. President of the European Commission Ursula von der Leyen has spoken about a zero for zero tariff agreement. And Greek Prime Minister Kyriakos Mitsotakis gave an interview to Breitbart News expressing confidence that the EU and the USA could reach a ‘win-win’ trade deal.

EU-US talks are crucial, but the transatlantic deficit of trust can hardly be restored in the short and medium term. Unilateralism, unpredictability and practices of economic coercion cause anger in the EU and require a solid response to limit damage and safeguard its interests. As the crisis is far from over (with some tariffs still in place in spite of the 90 days pause) job protection measures in the manufacturing sector are urgent and will certainly inspire some confidence in European societies. Another priority for the EU is to streamline its trade partnership with China. As long as the Sino-American trade war intensifies, the European market becomes more significant for China. This creates challenges and opportunities for the EU to protect its industries from the inflow of cheap Chinese products in the Old Continent and simultaneously collaborate with China in building a fair and reformed trading system. President von der Leyen has already discussed these subjects with China’s Prime Minister Li Qiang.

Economic chaos is certainly bad news for the EU, but the silver lining is that it navigates the storm drawing on predictability, responsibility and multilateralism. Some analysts go even further and suggest that the EU has to fill the void left by the USA and issue more debt in order to strengthen the international role of the Euro as a global reserve currency and of Euro assets as an appealing haven. Of course, it is premature to suggest that President Trump would be unable or unwilling to correct mistakes. The temporary pause of tariffs due to market pressure is a clear indication.  Being cautious and pragmatic the EU could endeavor to find a mutually accepted solution with the USA while looking at alternative market destinations in line with its trade standards. Talks with India and the UAE on free trade are placed in this context.