BREAKINGVIEWS-Trump reciprocal tariffs are key test of EU unity

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Yawen Chen

LONDON, Feb 19 (Reuters Breakingviews) - Donald Trump’s tariffs are a headache for all his trade partners. But the U.S. president’s plan to impose ad hoc “reciprocal” levies on imports are a particular problem for the European Union. By enabling him to target whichever countries in the bloc he pleases, it could put the 27 member states’ unity under severe strain.

The European Commission represents the bloc on trade and has a united front when it comes to tariffs. Say Trump decides to place a 25% levy on imports of European cars, as Goldman Sachs analysts expect. EU Trade Commissioner Maros Sefcovic can speak for all member states in formulating a trade response.

Even in this straightforward case, the EU has a weakness. Over 80% of the bloc’s 156-billion-euro trade-in-goods surplus with the U.S. stems from Germany and Italy, with a big chunk coming from car exports. Many member states don’t have a surplus at all, and the likes of Spain import more than they export. Hence a Brussels tit-for-tat response helps Berlin and Rome, but constitutes wasted negotiating capital for everyone else.

Assuming they actually get deployed, Trump’s “Reciprocal and Fair” tariffs could amplify that vulnerability. They may allow the U.S. to unilaterally target trading partners, even if they are part of a wider bloc. All that’s needed is to transgress five criteria, which include taxes but also any structural impediment Washington deems “unfair”.

Imagine Trump slaps a blanket 50% tariff on all imports from Denmark, to punish Copenhagen’s temerity in refusing to hand over Greenland. Unlike an EU-wide levy, it wouldn’t hurt any of the other 26 member states at all. The likes of Germany, France and Spain would have limited incentive beyond solidarity to anger Trump by placing counter-tariffs on U.S. imports.

Reciprocal tariffs could extend far beyond Greenland-style spats, though. Trump may decide to punish certain member states for having higher “unfair” rates of value-added tax, which he has decided punishes U.S. exporters. He could also single out the likes of France, which levies digital services taxes on U.S. big tech groups, for treatment.

Europe isn’t completely powerless. Individual EU states could try to placate Trump via non-tariff goodies. Germany, for example, could nudge Volkswagen to make more cars in the U.S. instead of Mexico.

Still, EU officials already face the difficulty of trying to get member states to spend more on defence, even though not all of them are right next to Russia. If Trump uses his reciprocal tariff system to go after some European states but not others, it will make coordinating an effective EU-wide trade response to his aggression much harder – and may make those on the receiving end of punitive treatment wonder why they are in the bloc at all.

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CONTEXT NEWS

The European Union has made and received no specific offer on reducing U.S. tariffs, including car tariffs, the European Commission said in a Questions and Answers published on February 18.

Addressing a U.S. protest about asymmetries such as the EU’s 10% levy on cars compared to the U.S.’s 2.5% one, the Commission said tariff structures vary between economies, with some EU tariffs higher than those of the U.S. and many others lower. Specifically on cars, it noted that the U.S. imposes a 25% tariff on pickup trucks, the largest segment of the U.S. auto market, accounting for about one-third of all vehicle sales.

The Commission added that there is not one “absolute” figure for the average tariffs on EU-U.S. trade due to technical reasons, as this calculation can be done in a variety of ways which produce varied results. Nevertheless, it estimated the average tariff rate on both sides is approximately 1% and added that the U.S. collected approximately 7 billion euros of tariffs on EU exports in 2023, while the EU collected approximately 3 billion euros on U.S. exports.

The Commission also said on February 14 it would react “firmly and immediately” against tariff increases resulting from U.S. President Donald Trump’s proposed “reciprocal” trade policy, which it labelled unjustified and a step in the wrong direction. Trump tasked his economics team on February 13 with devising plans for reciprocal tariffs on every country taxing U.S. imports, with potential targets including South Korea, China, Japan and the European Union.