In a pivotal week for transatlantic trade relations, the new EU Böll Brief “Trading partners? Europe's options against Trump’s tariffs“ analyses the potential consequences of rising US tariffs on European trade and explores strategic responses available to the EU, highlighting the economic risks of a tariff war for each individual EU Member State and outlining alternative strategies for the EU to safeguard its economic interests.
Our Böll EU Brief sketches three possible scenarios for the EU to act:
- Scenario #1 – “Trade War”: The escalation of a tariff war between the EU and US would be mutually harmful. EU exports to the US would be slashed by half, with disproportionate impacts on Member States such as Ireland, Slovakia and Belgium. US GDP would also contract over the long term.
- Scenario #2 – “Trade Truce”: To mitigate these economic losses, the EU could negotiate a limited scope sectoral agreement with the US. This would dial back the negative impact of imposed tariffs. But the real GDP effects compared to the baseline without any new tariffs are close to zero across all EU Member States.
- Scenario #3 – “Trading partners”: Deepening trade ties with existing FTA partners, – such as Canada, South Korea, Singapore and Japan – would deliver larger GDP gains across all EU members and a wider range of industries, in spite of a trade war with the US. It would also reduce the bloc’s dependence on the US market for exports in the long run.
To address the unequal distribution of economic burdens from a tariff war with the US across EU members and sectors, the bloc should
- Scale up instruments such as the Globalisation Adjustment Fund
- Explore compensation mechanisms for hard-hit sectors and EU Member States that use revenues earned via retaliatory tariffs
- Deploy safeguards against trade diversion where necessary
Roderick Kefferpütz, Director of the Heinrich-Böll-Stiftung European Union: “If Trump chooses confrontation, Europe must respond with diversification. This isn’t just about protecting our interests, it’s about advancing them. Deepening trade ties with reliable partners like Canada, South Korea, and Japan is essential. Our study shows: It will make the EU more resilient, reduce overdependence on any single market, and not only cushion the impact of a EU-US trade war but strengthen our economy in an increasingly uncertain world.”
Anton Möller, Head of Programme Green Economic and Social Policy in the EU, Heinrich-Böll-Stiftung European Union: “Whereas the focus lays on trade and tariffs, we must also consider the distributional impacts within the European Union. Supporting the most exposed regions and workers can ensure cohesion within the Union. To fund this, the European Commission could think about using income from retaliatory tariffs here – though they are difficult to plan with and should be accompanied by discussions on more plannable tools, for example a Digital Services Tax. Lastly, long needed investment in future proof infrastructure in the EU can spark domestic demand, further reducing our vulnerability to trade shocks.”
Read the full Böll EU Brief 01/2025 | Trading partners? Europe's options against Trump’s tariffs
This article first appeared here: eu.boell.org