In Trump’s Tariff War, Time is on the EU’s Side

China has already imposed reciprocal tariffs on imports of US goods, raising the odds of a global recession. How the EU responds matters. Its single market represents the world’s third biggest economy. But unlike its systemic rival China and the increasingly autocratic US, the EU wants to preserve the rules-based international order.

The 27 member states are roughly divided into three groups. France and Germany want a fast and furious retaliatory response, while Italy, Greece, Romania, and Hungary oppose escalation. The remaining member states mostly back the European Commission’s strategy of delaying a response to prepare measures that would target politically sensitive US services exports while offering concessions to negotiate lifting the tariffs. The Commission has prepared a list which, if approved by member states, could take effect as early as on 15 May.

To decide on the appropriate course of action, the EU should see Trump’s announcement for what it is: part of a full-blown attempt at rewriting the international order and coercing democratic partners into obedience, no matter the economic cost to the US, which is itself amongst the most exposed. If the EU wants to face this double-barrelled attack on the world trading system and democracy, then it cannot look at individual policy areas through a straw. Nor can it use the normal criteria for successful politics.

The attack is all-encompassing and requires a response in kind: a blow which can neither be ignored nor serve as an excuse for the Trump White House to pin the fallout of its own actions on the EU.

The EU’s anti-coercion instrument provides for such a strong response. It is a trade instrument designed to engage with geopolitical disputes that fall outside the framework of the World Trade Organization and which are fought through economic means. It provides the EU with a legal basis to retaliate across various sectors of the economy, for instance, against the ‘broligarchs’ of big tech. Also, the procedure to implement the countermeasures takes anything between 6 to 12 months to be passed through the EU’s authorising environment; time which is needed for the Trump tariffs to reveal the damage done to the American public.

Economists point to the potential equivalent of a 1930s recession. Absent a sudden change in US policy, shelves in US supermarkets will start reflecting Trump-inflicted realities in 3 to 6 months from now. That buys the EU time to get Italy, the only big member state still opposed to a strong retaliatory response, to join the bulk of the member states in adopting a decision by way of a qualified majority vote. This response should be prefaced with action to prevent cheap Chinese overcapacity from inundating the European market. A well-calibrated policy mix is required to limit the damage to the EU’s open trading economy.

Member states should resist the temptation of following a symbolic line of action by approving the retaliation list that the Commission has now tabled. This list is separate from any use of the anti-coercion instrument. Instead, member states and the Commission should assist the worst-hit European companies by preventing them from going under. The EU’s rulebook on competition and state aid provides for such emergency responses.

At the same time, the Commission should load the anti-coercion gun and use the next six months to channel the economic pain felt throughout Europe and the rest of the world to deepen existing and shore up new economic partnerships with like-minded countries. If anything, attachment to multilateral systems, particularly in other open trading economies like the Southeast Asian countries, has increased as a result of the US threatening them. In the mid- to longer term, the cost of American isolationism could well be Europe’s gain.