In a dramatic policy shift that has alarmed global markets and foreign governments, former U.S. President Donald Trump, now the Republican nominee and front-runner for the 2024 election, announced plans for sweeping tariffs on European Union (EU) imports if re-elected. The proposed tariffs, set at 10% on all EU goods and 25% on certain categories like automobiles and luxury items, would mark a significant escalation in the long-standing trade tensions between the United States and its European allies.

The announcement, made during a campaign rally in Michigan on May 23, has already triggered a wave of diplomatic backlash and uncertainty among business leaders on both sides of the Atlantic.

A new front in Trump's tariff strategy

Trump framed the proposed tariffs as a necessary corrective to what he described as an "unfair and one-sided" trade relationship. According to Trump, the EU has "taken advantage" of American businesses and consumers for decades through protectionist policies and burdensome regulations that favor European firms over their U.S. competitors.

"We are losing hundreds of billions of dollars in trade with the EU," Trump said. "This has gone on far too long, and it’s time we put America first—again."

This rhetoric echoes the confrontational trade strategies that defined Trump's first term in office. His administration imposed tariffs on steel, aluminum, and other goods, not only from China but also from allies like the EU and Canada, often prompting retaliatory measures. While those earlier tariffs were partially rolled back or suspended under the Biden administration, Trump’s latest proposals signal a return to his hardline stance on global trade.

European leaders push back

The EU's response has been swift and firm. Maroš Šefčovič, the European Commission’s executive vice-president for trade, stated unequivocally that Europe will not be “bullied” into compliance.

“A partnership based on mutual threats is no partnership at all,” Šefčovič told reporters in Brussels. “We remain open to fair and balanced dialogue, but we are prepared to defend our industries, our jobs, and our principles.”

French Trade Minister Laurent Saint-Martin called the proposed tariffs “an act of economic aggression” and warned that they could “severely damage the trust” underpinning U.S.-EU relations. German Chancellor Annalena Baerbock urged Trump to reconsider the move, citing the interconnected nature of global supply chains and the risk of economic disruption on both sides.

Italian Foreign Minister Antonio Tajani echoed these sentiments, suggesting the EU should prepare a list of countermeasures if talks with the U.S. fail to avert the tariffs.

Economic stakes are high

The EU is the United States’ largest trading partner, with bilateral trade in goods and services totaling over $1.2 trillion in 2023. Key exports from the EU to the U.S. include vehicles, pharmaceuticals, machinery, and chemicals—industries that are heavily integrated into global supply chains and particularly vulnerable to trade disruptions.

A recent report from Goldman Sachs estimated that a blanket 10% tariff on EU goods could reduce eurozone GDP by 0.8% annually, with deeper impacts for export-reliant economies like Germany and the Netherlands. If the tariffs were raised to 25%, the projected GDP hit could exceed 1.5% by 2028.

For the U.S., the tariffs could backfire by increasing the cost of imported goods for consumers and businesses. Products ranging from German-engineered vehicles to Italian wine and French cosmetics could become significantly more expensive, potentially driving up inflation at a time when the Federal Reserve is working to bring price levels under control.

Apple, automobiles, and the digital divide

Particularly controversial is Trump’s proposal for a 25% tariff on smartphones and other electronic goods manufactured outside the U.S. This measure, widely interpreted as targeting Apple, underscores the administration’s focus on reshoring manufacturing and reducing U.S. reliance on foreign supply chains.

Industry analysts say the measure could be damaging to both U.S. tech companies and European suppliers. Apple, for instance, designs its products in California but relies on a complex global manufacturing network, including suppliers in Germany and the Netherlands. A sudden change in tariff policy could create severe logistical challenges.

Automobile manufacturers are also bracing for impact. BMW, Mercedes-Benz, and Volkswagen all operate large export operations to the U.S., and they employ thousands of workers across Europe. Executives have warned that punitive tariffs could force plant closures or downsizing in the absence of alternative markets.

Europe’s options: retaliation and resilience

In response, EU leaders are weighing a variety of retaliatory options. Among the most likely are reciprocal tariffs on U.S. goods, particularly those from politically sensitive states. Products under consideration include bourbon whiskey, Harley-Davidson motorcycles, and U.S.-made agricultural goods such as soybeans and corn.

The EU also possesses new legal tools to combat economic coercion. The Anti-Coercion Instrument (ACI), passed in 2024, allows Brussels to impose countermeasures quickly and flexibly. These could range from tariff increases to restrictions on investment or public procurement for U.S. companies operating in Europe.

“Our response will be measured but resolute,” said Šefčovič. “We will protect the integrity of our single market and the interests of our citizens.”

Global markets react

Markets have already begun to react to the specter of a renewed tariff war. The Stoxx Europe 600 index fell by 1.7% following Trump’s announcement, while shares in major European car manufacturers dropped between 3% and 5%. The euro also lost ground against the dollar, reflecting investor anxiety over the economic fallout.

In the U.S., stock futures dipped amid concerns that retaliatory tariffs could hurt American exporters and fuel inflationary pressures. Analysts at Morgan Stanley warned that a tit-for-tat tariff cycle could shave as much as 0.6% off U.S. GDP growth over the next two years.

The road ahead

Whether Trump’s tariff threat materializes will likely depend on the outcome of the November election. For now, it serves as a stark reminder of how fragile transatlantic economic ties can be when political pressures mount.

In Brussels, the tone remains one of cautious defiance. EU leaders say they are still open to diplomacy but will not negotiate under duress. "We hope to avoid escalation," said Šefčovič, "but we are not afraid of it."

As the world watches, the next few months will be critical in determining whether the U.S. and EU can find a path back to cooperation—or whether they are headed for another costly trade war.