Tariff Concerns Drive Europe To Gear Up for a Trade Fight --- Threatened U.S. duties risk nudging the EU toward protectionist moves

"BRUSSELS -- President Trump's tariff warnings are forcing Europe to choose between shouldering the economic costs of keeping its own tariffs low and throwing up new barriers in a bid to protect its industries.

The European Union has long defended the rules-based system for free trade, and last month announced a breakthrough on a trade deal with four South American countries. At the same time, the bloc is preparing to respond to Trump's plan to use tariffs to achieve policy objectives.

Europe wants to avoid an all-out trade war. The U.S. is the EU's biggest trading partner, according to the American Chamber of Commerce to the EU. Any U.S. move to impose global tariffs of up to 20%, as Trump has threatened, would damage Europe's already ailing economy.

Higher U.S. tariffs on China could redirect cheap products to Europe in a double whammy for the bloc's domestic manufacturers.

EU officials hope to head off some of those threats with proposals that could include pledges to buy more American liquefied natural gas and defense supplies and an offer to team up with Trump in confronting Beijing. The bloc could also commit to more support for Ukraine, and member states could boost military spending, The Wall Street Journal has reported.

The EU has prepared options for retaliation, which diplomats have said could include tariffs that target products from politically sensitive U.S. states.

The president's unpredictability makes it difficult to prepare for any actions he might take. His advisers have different views on tariffs.

Trump's trade plans could also link up with broader tensions with the EU. The EU plans to work with the administration toward mutually beneficial outcomes, a spokesman for the European Commission, the EU's executive body, said Friday. But he added, "If necessary, we will defend our legitimate industries, our companies and our member states."

The EU has long based its approach on a view that free trade is a path to global security and economic growth. Its response to trade conflicts typically involves lengthy investigations and proportionate retaliation. Instead of joining the U.S. in slapping 100% tariffs on Chinese electric vehicles last year, the EU held a monthslong investigation into Chinese subsidies that led to additional tariffs of up to about 35%. And it earlier resisted Biden administration efforts to persuade it to join forces and impose punishing tariffs on Chinese steel, in part because of Europe's concerns about World Trade Organization compliance.

But if Trump follows through on some of his trade threats, potentially rewriting global trade flows, the bloc could face pressure to build higher walls.

"It's really hard to say, politically, just take it on the chin and don't respond," said Jennifer Hillman, a trade expert at Georgetown University and a former WTO official. She said she expects the EU and others to structure any responses to be as compliant as possible with WTO law and to avoid escalation. "But they don't have many good cards to play," she said.

Even a deal to avert U.S. tariffs could require pragmatism. "We want to stick as much as we can to the rules-based order and the WTO," an EU diplomat said. "But it is going to be difficult to do so in negotiating with Trump, because he doesn't care."

Brussels is responsible for trade policy, but the EU's 27 member states will ultimately drive its approach. Some countries are eager to calm trans-Atlantic tensions while others might see political benefits from strong retaliation.

The EU created an arsenal of tools in recent years to give it more options. The changes might not be enough for some European leaders. French President Emmanuel Macron recently questioned the insistence on sticking with global trade rules. He said the EU's tariffs on Chinese EVs weren't adequate to protect industry.

"The rules of the WTO are no longer respected by either China or the United States of America," he said this month.

The EU's trade commissioner, Maros Sefcovic, said this month that the bloc is committed to the WTO but believes it needs to change to "overcome the problems we face in today's trading system."

Some officials and trade experts believe Trump's threats strengthen the EU's incentive to double down on free trade with the rest of the world.

The South American breakthrough came after years of negotiation and despite opposition from France and Poland. On Friday, the EU announced a revamped deal with Mexico.

"Many countries will feel the need to stick together," said Cecilia Malmstrom, a former EU trade commissioner.

A recent report by the Germany-based Kiel Institute for the World Economy found the EU's economy would be hit much harder by a breakdown in the rules-based trading system than it would by U.S. tariffs alone. That means the EU should try to keep the system as intact as possible, said Gabriel Felbermayr, director at the Austrian Institute of Economic Research and one of the report's authors. "Failing to do so would damage the EU's trade interests with many other countries," he said." [1]

1. World News: Tariff Concerns Drive Europe To Gear Up for a Trade Fight --- Threatened U.S. duties risk nudging the EU toward protectionist moves. Kim Mackrael.  Wall Street Journal, Eastern edition; New York, N.Y.. 21 Jan 2025: A12.