U.S.-EU Trade War Would Put at Risk World's Most Valuable Alliance

 

"BRUSSELS -- European leaders, bracing for a fight with President Trump over the world's most valuable trading relationship, said they are ready to strike back but prefer cooperation.

Trump over the weekend announced punishing tariffs on Canada and Mexico and made clear that U.S. allies across the Atlantic were high on his target list. He later agreed to pause tariffs on Canada and Mexico for one month.

"It will definitely happen with the European Union," Trump said of his tariff plans. "They've really taken advantage of us."

European Union leaders assembling in Brussels on Monday for a planned meeting to discuss military spending -- another hot-button issue for Trump -- mostly played down prospects of tit-for-tat duties or similar retaliatory measures.

But the 27-country bloc, which is at heart a free-trade zone, has for months been preparing potential responses to Trump tariffs.

"If we're attacked on trade, Europe, as an enduring power, must command respect and respond," said French President Emmanuel Macron.

The stakes are hard to overstate. According to the Office of the U.S. Trade Representative, the U.S.-Europe trade and investment relationship "is the largest and most complex in the world."

Trump on Sunday renewed his focus on a trade surplus that Europe has long run with the U.S., which he said was more than $300 billion. The U.S. Census Bureau said the goods deficit with the EU was $214 billion last year, on U.S. goods exports to the EU valued at $342 billion.

"They don't take our cars, they don't take our farm products, they take almost nothing, and we take everything from them," Trump said. "It's an atrocity what they've done," he said.

The U.S. ran a surplus of about $77 billion in services exported to the EU in 2023, which the Commerce Department valued at $262 billion.

Trade volumes pale in comparison to the value of trans-Atlantic investment. Each side accounts for more than 60% of all foreign direct investment in the other economy, far surpassing the significance of any other economy's investments, according to U.S. government data analyzed by the American Chamber of Commerce to the EU.

Sales by U.S. companies operating in Europe, at over $3.8 trillion in 2022, are more than four times the value of U.S. exports of goods and services to Europe, according to AmChamEU. For European companies operating in the U.S., the figures and proportion are almost as high.

Trump's pressure comes at a particularly difficult time for Europe. The EU economy grew by only 0.8% last year, according to a preliminary estimate by the bloc's statistical office. The U.S. economy grew by 2.8% last year, according to the Commerce Department. Leaders of the EU's biggest countries, including Germany, France and Poland, are constrained by political infighting and elections.

Top EU officials have signaled to Trump their willingness to cooperate with him on countering China economically and geostrategically. Europeans have grown much warier of China than they were during Trump's first term.

"What is clear is that there are no winners in trade wars," EU foreign-policy chief Kaja Kallas said. If the U.S. starts a trade war with Europe, she said, "then the one laughing on the side is China."

Officials within the EU, which generally advocates free trade, have spent months drawing up options for responding to U.S. tariff threats, including with duties that could target products from politically sensitive U.S. states. Such a response might mirror the kinds of retaliatory tariffs Canada threatened in recent days, as well as the EU's retaliation to Trump's steel and aluminum tariffs during his first term.

European officials have also held talks with their counterparts in Canada, which has a free-trade agreement with the EU, and recently announced a revamped trade deal with Mexico.

Whether Trump wants negotiations is a question weighing on Europe. EU leaders have suggested they could buy more liquefied natural gas from the U.S., but so far the overture has elicited no public reply. Some officials say buying more military equipment might help.

The EU's long-running trade surplus in goods has angered Trump since before his first term, as has low European military spending. Most European members of the North Atlantic Treaty Organization perennially lagged behind alliance spending targets, though many have recently boosted outlays in response to pressure from Trump and events in Ukraine.

But just after European NATO members on aggregate reached the alliance's target of spending 2% of gross domestic product on defense last year and started talks about raising that threshold toward 3%, Trump recently said the level should be 5% -- a level few, if any, EU countries can afford.” [1]

No, tiny Lithuania can afford 5 percent of GDP or more. We will just take the last bite of food from our retired people. We don’t care. We are talking only about big politics in Lithuania. We are dying out here anyway. Let’s do that with military music playing." [1]

1. U.S. News: U.S.-EU Trade War Would Put at Risk World's Most Valuable Alliance. Michaels, Daniel; Kim Mackrael.  Wall Street Journal, Eastern edition; New York, N.Y.. 04 Feb 2025: A5.