Beyond payback and sweet talk: How the EU can outsmart Trump’s tariff gambit
Frederik Stender and Tim Vogel argue that its time to turn “open strategic autonomy” into more than just a hollow slogan.
Donald Trump is back on the global stage, and with him, the specter of tariffs. After strong-arming Mexico and Canada with duties, the European Union (EU) is next in the firing line. Keeping up with Trump’s trade tactics is no easy feat these days, but here’s the latest: A sweeping 25% tariff on all EU imports. This follows earlier threats of extra duties on steel and aluminum, along with his notion of “reciprocal tariffs”.
While the term may ring a bell for trade enthusiasts, Trump’s “reciprocal tariffs” stray far from the WTO’s core principle of reciprocity. Both broad-based and bilateral versions break with established norms. Though the WTO has stagnated since its GATT days, its key rule – non-discrimination in tariff rates – has largely remained intact. Until now.
Trump’s tariff grievances extend well beyond trade imbalances, with motives that remain vague and ever-shifting. While the U.S. has long targeted China for its non-market policies, Mexico and Canada are now threatened with trade wars over alleged drug trafficking. Meanwhile, the EU is under scrutiny for its trade standards, regulations, value-added taxation, and even its very existence. In a speech to his new cabinet on 26 February, Trump bluntly claimed the EU exists solely to “screw the U.S.”. If any doubt remained, his justification for punitive tariffs is as broad as he wants – anything deemed “unfair” is fair game.
With tariffs on the horizon, the EU is bracing for tit-for-tat retaliation. First on the agenda? Likely reactivating the 2018 list of counter-tariffs, targeting iconic U.S. products like Kentucky and Tennessee Whiskey, Florida citrus products, and Wisconsin-made Harleys. While the list may expand, the strategy seems to remain unchanged: Hitting Trump-friendly red states while minimizing economic impact on EU consumers. Though many of the targeted goods carry political weight, they have limited impact on EU shopping baskets. If Trump follows through on his threats and imposes tariffs on all European imports, the EU may shift its approach – perhaps even deploying its new Anti-Coercion Instrument.
But the EU’s response isn’t just about retaliation – it also leverages soft power. Officials have signaled a readiness to negotiate, offering concessions such as increased military purchases and more energy imports from the U.S. On tariffs, the EU has suggested lowering its car Most-Favoured-Nation (MFN) duties, challenging Trump’s “reciprocity” argument.
Are these approaches wise? It depends on the perspective. From a game-theory viewpoint, retaliation is a logical strategy, particularly since the EU has few other immediate alternatives. Further down the road, negotiation is also a strategic move, considering the self-proclaimed “tariff man” could be in office for another 1,400+ days.
Yet, if there’s one lesson from Trump’s trade policy déjà vu, it’s that his approach rarely aligns with reason or balance. So, what if the EU took an unconventional path in response to Trump’s tariff moves? Why not try to “get ahead of the wave” rather than simply reacting?
Many policy experts have proposed creative paths forward, from taking a tougher stance on China to boosting EU demand for U.S. products, all aimed at appeasing Trump. In a thought-provoking piece, Richard Baldwin explores how Mutually Assured Destruction (M.A.D.) might play out in trade. His idea? If the U.S. were to set a 25% tariff as “optimal”, the EU could threaten to impose the same rate as an export tax, escalating costs for both sides.
In the realm of creative solutions, however, the EU has another previously undebated, at least publicly, opportunity to turn retaliation into an advantage by leveraging its commitment to multilateralism. Instead of merely testing Trump’s response on MFN tariffs for key products like cars, why not link MFN reductions to items on the EU retaliation target list? This could shield the EU from price hikes while sending a strong message: The EU is ready to back its multilateral rhetoric with concrete action.
Not convinced? Consider this: Over two-thirds of the products on the 2018 list of retaliatory tariffs have a non-zero MFN tariff. Lowering these rates could allow other trading partners to step in and replace U.S. imports hit by retaliation tariffs. While actually realized M.A.D. export taxes would hit EU producers a second time after the American tariffs, lowering MFN tariffs would not place any additional direct burden on them. If anything, the increased competition faced by European companies due to reduced MFN tariffs could ultimately benefit European consumers. In addition to China, developing countries such as Turkey, Bangladesh and India are among the countries that currently export significant quantities of goods on the retaliation list to the EU and would therefore benefit.
Of course, this mechanism would only be effective for reasonably homogeneous goods and would not fully offset the impact of higher U.S. tariffs on a one-to-one basis. Oranges are certainly more substitutable than motorcycles. Moreover, this logic holds only if the EU retaliation list remains lean and focused on politically sensitive goods rather than expanding too broadly. More importantly, however, this multilaterally framed move would send a strong signal - reassuring developing countries that they are not at the mercy of great-power politics. By offering a multilateral deal, the EU could position itself as a reliable partner, strengthen its economic security, and restore trust in the rules-based trading system.
An intriguing twist could come if the EU commits to locking in lower MFN rates for longer than U.S. tariffs last. This could incentivize the U.S. to adopt a more cooperative trade approach. While some of Trump’s grievances have merit, they are better addressed through collaboration—just as the U.S. and EU worked under Biden on a “Global Arrangement on Sustainable Steel and Aluminum.” If the U.S. shifts back to a multilateral problem-solving approach, retaliatory tariffs would ease, and the U.S. would benefit from even lower MFN rates on key goods.
Technicalities aside, is this politically realistic? Probably not much more than Baldwin’s M.A.D. thought experiment. Much depends on the scope of Trump’s tariffs, and European industries may not cheer the prospect of opening key markets like steel, aluminum, or agriculture. However, if the list is narrow enough, MFN reductions could restore the pre-tariff status quo or focus on goods not heavily produced in Europe. Be this just wishful thinking, it’s time for the EU to adopt a more proactive and confident approach to trade – turning “open strategic autonomy” into more than just a hollow slogan. The EU should seize the moment!
Frederik Stender is a senior researcher at the German Institute of Development and Sustainability (IDOS) in Bonn, Germany. His research focuses on trade policy. His op-eds and commentaries have appeared in Euractiv, LSE EUROPP Blog, LSE Business Review Blog and Frankfurter Rundschau, among others.
Tim Vogel is a postdoctoral researcher in economics at IDOS, focusing on trade policies in a development context. He has previously published commentaries in the LSE EUROPP Blog, LSE Business Review Blog, and developmentresearch.eu.
Photo by Bingqian Li
