Tariffs: should the EU respond before 9th July?

“Since 2^nd April 2025, Don­ald Trump has turned the whole organ­isa­tion of value chains upside down,” explained Chris­ti­an Deb­lock in an art­icle for Poly­tech­nique Insights, shed­ding light on the recent upheavals linked to tar­iff hikes. On that date, the United States imposed uni­ver­sal cus­toms duties of 10% on its trad­ing part­ners and recip­roc­al tar­iffs on many of them. On 9^th April, the fed­er­al gov­ern­ment went one step fur­ther by impos­ing new sur­charges on products from some sixty coun­tries around the world. Then, on the same day, Don­ald Trump declared the sus­pen­sion of recip­roc­al tar­iffs for 90 days, until 9^th July 2025. In the mean­time, an addi­tion­al cus­toms duty of 10% will apply to European Uni­on imports enter­ing the United States. As the 9^th July dead­line approaches, Isa­belle Méjean, pro­fess­or of eco­nom­ics at Sci­ences Po, agreed to answer our ques­tions on the issues raised by this glob­al trade war.

Isa­belle Méjean. We have entered Don­ald Trump’s second term and the second phase of a trade war that began in 2018–2019. Dur­ing the first term of the cur­rent US Pres­id­ent, tar­iff attacks were mainly dir­ec­ted at China. How­ever, the United States was already impos­ing tar­iffs on all coun­tries, par­tic­u­larly on steel and alu­mini­um. So, it’s noth­ing new for the European Com­mis­sion to have to devel­op a strategy for retali­at­ing against tariffs. 

How­ever, the situ­ation has accel­er­ated sig­ni­fic­antly since 2^nd April. And since 9^th April 2025, every coun­try in the world has been facing a 10% tar­iff on their exports of goods to the United States. These tar­iffs are accom­pan­ied by the threat of addi­tion­al ‘recip­roc­al tar­iffs’ on all coun­tries with a trade sur­plus with the United States, such as the European Uni­on, which exports more goods to the United States than it imports. The recip­roc­al tar­iffs are cur­rently frozen until 9^th July, and the greatest uncer­tainty today con­cerns what will hap­pen after that fate­ful date.

To deal with these recip­roc­al tar­iffs, the European Com­mis­sion has been pre­par­ing a response strategy since April, tak­ing a num­ber of vari­ables into account. Firstly, a trade war is nev­er desir­able because it is costly for every­one. Secondly, only the biggest play­ers can really fight back: the European Uni­on and China. Unfor­tu­nately, coun­tries such as Viet­nam and Thai­l­and are forced to con­clude very dis­ad­vant­age­ous deals because they do not have the mar­ket power of an eco­nomy like that of the European Union.

China, for example, has reacted very quickly to the US tar­iffs since April. Thanks to the size of its mar­ket and the scale of its exports, the European Uni­on also has the capa­city to imple­ment a real­ist­ic response strategy. It is there­fore pre­par­ing the ground for this response strategy while con­tinu­ing to nego­ti­ate, which is com­plic­ated because insti­tu­tions such as the European Com­mis­sion or the French Treas­ury real­ise that there is no inter­locutor in Wash­ing­ton today. And even if the European Uni­on is the­or­et­ic­ally cap­able of nego­ti­at­ing a win-win deal with the United States, this lack of inter­locutors sug­gests that the European Uni­on will have to intro­duce retali­at­ory measures.

Today, the struc­ture of world trade is built around a tri­part­ite bloc. Three major trad­ing blocs dom­in­ate the world: China, the European Uni­on and the United States. By com­par­is­on, the oth­er coun­tries of the world have little impact on the inter­na­tion­al trad­ing sys­tem. Of these three blocks, the European Uni­on is in a rel­at­ively favour­able pos­i­tion because it pro­duces more man­u­fac­tured goods than it con­sumes. It there­fore has a trade sur­plus with the rest of the world, par­tic­u­larly the United States. For this reas­on, as we have seen, it is sub­ject to the threat of recip­roc­al Amer­ic­an tariffs.

Des­pite their con­sid­er­able nego­ti­at­ing power in inter­na­tion­al trade, China and the European Uni­on are not adopt­ing the same kind of strategy today. For its part, China reacted quickly and strongly, hav­ing already won a tug of war with the United States – even if the word ‘win’ should be taken with cau­tion here because tar­iffs on Chinese products in the United States are cur­rently around 50%, which is still very high. They were 2.2% on aver­age at the start of the 2018 trade war and 19.3% at the start of Don­ald Trump’s second term. 

On the con­trary, the European Uni­on’s strategy is built on a long-term plan and on dip­lomacy. In a trade war, this slow­ness can be a strength. But we must also avoid it appear­ing as a sign of weak­ness. In my opin­ion, the European Uni­on should have announced its strategy before 9^th July, because there was an advant­age in announ­cing the risks of pos­sible retali­ation against the United States. How­ever, mak­ing such a choice is dif­fi­cult and time-con­sum­ing because many European retali­ation tools can­not be activ­ated without the pri­or agree­ment of a qual­i­fied major­ity of Mem­ber States.

The anti-coer­cion instru­ment was intro­duced in 2023 and has nev­er been used until now. It was ori­gin­ally inten­ded to deal with coer­cion prob­lems with China, which has reg­u­larly used eco­nom­ic weapons for geo­pol­it­ic­al pur­poses over the last twenty years. To respond to coer­cive attacks, the European Uni­on has equipped itself with a leg­al instru­ment. Today, it is pos­sible to inter­pret the cur­rent trade war as a form of coer­cive meas­ure, and to use this leg­al instru­ment as a basis for retali­ation at European level.

But why are we cur­rently talk­ing so much about the anti-coer­cion instru­ment? As we have already men­tioned, the European Uni­on has a goods sur­plus with the United States. How­ever, it also has a defi­cit on its ser­vices bal­ance. Europe imports far more Amer­ic­an ser­vices than it exports. So, it’s not sur­pris­ing that all Don­ald Trump’s retali­at­ory meas­ures are cal­cu­lated solely on the bal­ance of goods, and not on the bal­ance of ser­vices. By includ­ing ser­vices in inter­na­tion­al trade, the situ­ation is partly reversed. 

Today, Europe is being attacked on its com­par­at­ive advant­age: the bal­ance of goods, with threats of tar­iffs on goods. In response, it has a range of tools at its dis­pos­al to retali­ate against the United States on goods, because Europe also imports man­u­fac­tured goods from the United States, which could be taxed. How­ever, Europe is also heav­ily depend­ent on ser­vices expor­ted from the US. This is why many eco­nom­ists and insti­tu­tion­al mem­bers of the European Com­mis­sion believe that retali­at­ory meas­ures on ser­vices should not be ruled out. This is a very import­ant cost lever for the United States.

We don’t usu­ally talk about this because, unlike in the case of goods, we have no tra­di­tion­al trade policy instru­ment for ser­vices, which are pro­duced and sold dir­ectly on nation­al ter­rit­ory. It is pre­cisely in this respect that the anti-coer­cion instru­ment is inter­est­ing, as it offers a leg­al basis for poten­tially imple­ment­ing retali­at­ory meas­ures that pen­al­ise mainly Amer­ic­an ser­vice com­pan­ies in Europe. 

This leg­al pos­sib­il­ity is there­fore being dis­cussed today, and to pre­vent ser­vices from being taxed would be a stra­tegic error from the European point of view, even if the instru­ment has nev­er been used to date and can only be used with the agree­ment of a qual­i­fied major­ity. How­ever, there is some reluct­ance to use it in the event of a trade war, as it could gen­er­ate even more ten­sion. Some reluct­ant Mem­ber States, for example, describe it as a ‘weapon of mass destruction’. 

Added to this is the fact that we in Europe are very vul­ner­able when it comes to ser­vices. The United States holds near-mono­poly pos­i­tions in the cloud and in IT ser­vices, seg­ments in which we have no altern­at­ive except to join forces with Chinese com­pan­ies, which ulti­mately raises the same prob­lems of depend­ence. How­ever, we must not for­get that this instru­ment is a leg­al basis for tax­ing cer­tain com­pan­ies in an excep­tion­al way by tar­get­ing them. There is still an infin­ite range of pos­sible choices, more or less costly, to be made from this instrument.

These dif­fer­ences with the United States do not make China a friend of Europe, because the Chinese regime has nev­er been com­pletely aligned with European inter­na­tion­al doc­trine. How­ever, China remains a priv­ileged trad­ing part­ner for Europe.

But there is anoth­er ques­tion: what is the future of the WTO and to what extent should Europe con­tin­ue to be the driv­ing force behind mul­ti­lat­er­al­ism? If Europe does not want to give up, then it has no choice but to con­tin­ue to move for­ward with the rest of the world, which includes China. 

Even if China has always been a some­what mar­gin­al play­er in the World Trade Organ­isa­tion (WTO), mul­ti­lat­er­al­ism has immense advant­ages. It has been effect­ive in main­tain­ing and redu­cing trade bar­ri­ers, but also in dis­sem­in­at­ing envir­on­ment­al stand­ards on an inter­na­tion­al scale. Yet Chin­a’s retali­ation against the US tar­iffs has so far been based on argu­ments that com­ply with WTO rules. China is there­fore send­ing out a sig­nal that it wishes to con­tin­ue to play the mul­ti­lat­er­al game, which is also Europe’s choice. In the past, the altern­at­ive of a world trade sys­tem based on bilat­er­al nego­ti­ations has already been tested and has proved to be much less effective.

To be con­tin­ued on 9^th July…

Interview by Lucille Caliman