The EU could respond to Trump by slashing its own protectionism

By
Pieter Cleppe
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The European Union has prepared measures against American products as a possible response to President Donald Trump’s decision to impose a 25% tariff on steel and aluminium from 12 March. EU Trade Ministers are currently negotiating the details but reportedly, it would amount to “billions of euros”.

The EU Commission’s vice-president, Maroš Šefčovič, thereby vowed: “The EU sees no justification for the imposition of tariffs on our exports. Economically counterproductive. A lose-lose scenario.

We’re assessing the scope of the measures and will be responding in a firm, proportionate way by counter measures.”

Targeted EU counter-duties on products like bourbon, Harley Davidson motorbikes and some steel and aluminium were introduced in 2018 during Trump’s first term, but have since been suspended. At the time, they were valued at 2.8 billion euros in duties, an amount that would now have risen to 4.8 billion euro. Unless the EU decides otherwise, these duties will kick back into force from 1 April on.

According to EU diplomats, the EU’s response will be targeted at Trump-supporting states, but it will also be limited. It will however come more quickly than the three months it took the EU back in 2018.

Hoping for a deal

National capitals are in any case hoping to be able to agree a deal with Trump similar to the one he closed with Mexico and Canada, but then it is not yet clear at all what Trump wants in return, if he even wants that.

A key difference with 2018 is that the UK will not be copying the EU’s response. UK Prime Minister Keir Starmer’s spokesperson refused to comment on whether Trump was wrong to impose these wide-sweeping tariffs, saying instead: “We will take a considered approach to this. We will engage with the US on the detail, but the government is clear we will work in our national interest and this issue is no different to that.”

Notably, at the AI Summit in Paris this week, the UK also refused to sign the Summit declaration which outlined that AI should be inclusive, open, ethical and safe, simply because the U.S. refrained from doing so.

EU Protectionism on the chop?

Instead of repeating its failed strategy of last time around, perhaps the EU should try something different. Apart from looking on how to fulfil possible Trump demands, as for example buying more US LNG, the EU could pre-empt this by considering possible concessions itself.

One possible option could be to offer Trump to lower EU tariffs. Especially on agriculture, the EU’s has much higher tariffs than the other way around, but also in general, EU protectionism is slightly worse than US protectionism. To offer to equalise tariffs is the kind of thing Trump may like to hear.

In fact, the EU has introduced a great deal of new protectionism in recent years. One of the worst new initiatives is the EU’s new climate change tariff (CBAM), which also involves a great deal of bureaucracy for companies. The idea behind this is that the rest of the world should pay import tariffs to the EU as long as they do not adopt the EU’s suicidal climate policies. This kind of climate protectionism, which fortunately is not yet in effect, must obviously be scrapped.

EU regulatory protectionism under US fire

Furthermore, the EU has also rolled out a whole range of new regulations that exert a protectionist effect on its trading partners. One of this is the EU’s new CSRD directive, which forces companies to report on their environmental footprint and exposure to climate risk. Another one is the EU’s due diligence directive, which requires companies to identify and address both environmental and social harms in their supply chains. In US business circles, this has raised great concern.

The first warning signals have already been sent. Andy Barr is a Republication House Financial Services Committee member who met with European officials late last year to discuss Brussels’ “regulation factory”. He has warned the EU: “Donald Trump is America first. And if there is any example of a foreign regulation that puts America last, it’s the EU’s [climate agenda]. (…) An America first agenda will animate ferocious opposition to a European Union that attempts to impose their costly, burdensome regulations on American firms.”

Another EU regulations which was already annoying Trump’s predecessor, Joe Biden, is the EU’s anti-deforestation directive (EUDR). This directive also caused offence among European trade partners in South-East Asia and Latin America. As a result of this pressure, the EU decided to delay implementation until 2026, also because the European Commission had not finished its guidelines on when imports can or cannot be considered risky. This is causing a great deal of concern in Malaysia, for example, which, according to non-governmental organisations, has made great progress in the area of deforestation in the palm oil sector and, for that very reason, should be considered “low-risk”. This was partly due to its own MSPO standards, which the European Union however, refuses to recognise as equivalent, in contrast to the United Kingdom.

Things may in any case be escalated soon. Howard Lutnick, Trump’s pick to become commerce secretary, has announced the US may use “trade tools” to retaliate against European environmental, social and governance regulations that affect American companies.

Digital regulation

Also the EU’s digital regulation is considered to be protectionist by the Trump administration, particularly as the EU has now been going after US big tech for years. U.S. Vice President JD Vance told EU Commission President von der Leye in Paris this week that the EU’s “massive” regulations on artificial intelligence could strangle the technology, also rejecting EU regulations like the DSA, which impose content moderation on social media platforms, as “authoritarian censorship”. He stated: “Of course, we want to ensure the internet is a safe place, but it is one thing to prevent a predator from preying on a child on the internet, and it is something quite different to prevent a grown man or woman from accessing an opinion that the government thinks is misinformation.”

Vance thereby also attacked the EU’s data processing regulation GDPR, which he said meant endless legal compliance costs for smaller firms. This echoes Mario Draghi’s statement that “The General Data Protection Regulation (GDPR) is estimated to have reduced the profits for small tech companies by more than 15 per cent,” and “with this legislation, we are killing our companies.” The new European Commission however does not consider GDPR to be any problem at all.

Trump has attacked EU competition policy cases against American companies as “a form of taxation”. It is hard not to agree with this, when looking at how Apple is ordered to pay a whopping 13 billion euro in backtaxes to Ireland, as some kind of tax ruling is being requalified as “illegal state aid”, while the European Commission is less and less bothered by EU member states blatantly violating EU state aid rules.

Protectionism is obviously a lose-lose game, but if Trump ultimately decides not to go forward with his tariffs, in return for the EU scrapping at least part of its own protectionism, Trump may well have served the cause for free trade very well.

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