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Can the EU negotiate away Trump’s reciprocal tariff?

Publishing date
03 April 2025
Authors
Uri Dadush
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Following President Trump’s   of a 20% tariff on European Union imports, the EU must respond. It seems unlikely that the EU will be able to negotiate a lower tariff. Trump needs hundreds of billions of dollars in tariff revenue to cover extended and – a signature feature of the Republican agenda. He believes high tariffs will revitalise investment in US manufacturing. It is unclear whether this will be the case, but tariffs will come at a high cost to US consumers. 

Trump also believes that tariffs alone will close the US trade deficit. His formula for the reciprocal tariff applied to the EU, (39% ÷ 2 = about 20%) is based on the calculation of a tariff that would close  the US-EU trade deficit – that is ad hoc and has no basis in mainstream trade or macroeconomic thinking. 

As it negotiates, the EU must prepare to retaliate. Retaliation will be painful for EU consumers and importers, but it will increase the likelihood of a domestic backlash against Trump’s tariffs, deter further tariff hikes and build bargaining power for an eventual future tariff de-escalation. 

European citizens will expect a robust response as EU export jobs are lost and they may even boycott US goods and services. Nonetheless, the EU’s response must be proportionate and measured in order to avoid escalation, and to maintain cooperation on security matters as much as possible. 

Any retaliation must have a long-term perspective. The EU and the US share fundamental values such as democracy, freedom of speech, the rule of law, and the sanctity of international treaties. These values are embedded in the Constitution of the United States which dates back almost 250 years, and they will be around long after Donald Trump is gone. 

The Why Axis is a weekly newsletter distributed by Bruegel, bringing you the latest research on European economic policy. 

About the authors

  • Uri Dadush

    Uri Dadush is a Non-resident fellow at Bruegel, based in Washington DC, and a Research Professor at the School of Public Policy at the University of Maryland where he teaches courses on trade policy and on macroeconomic analysis and policy. He is also a Non-Resident Fellow at the Policy Center for the New South in Rabat, Morocco and Principal of Economic Policy International LLC, providing consulting services to international organizations. 

    Uri Dadush’s new book is Geopolitics, Trade Blocks, and the Fragmentation of World Commerce, Lexington Books,

    Uri was a co-chair of the Trade, Investment and Globalization Task-Force of the T20 and Vice-Chair of the Global Agenda Council on Trade and Investment at the World Economic Forum. He was previously Director of the International Economics Program at the Carnegie Endowment for International Peace. Prior to that he was Director of International Trade, Director of Economic Policy, and Director of the Development Prospects Group at the World Bank. Based previously in London, Brussels and Milan, he spent 15 years in the private sector, where he was President of the Economist Intelligence Unit, Group Vice President of Data Resources Inc., and a consultant with McKinsey and Co.

    His books include: Trade Preferences, Foreign Aid and Self-Interest; Trade Policy in Morocco: Taking Stock and Looking Forward (with Pierre Sauve' , co-editor); WTO Accessions and Trade Multilateralism (with Chiedu Osakwe, co-editor); Juggernaut: How Emerging Markets Are Transforming Globalization (with William Shaw); Inequality in America (with Kemal Dervis and others); Currency Wars (with Vera Eidelman, co-editor); and Paradigm Lost: The Euro in Crisis. His new book, 'Geopolitics, Trade Blocks and the Fragmentation of World Commerce' will be published by Lexington Books in September 2024.

    His columns have appeared in the Financial Times, the Wall Street Journal, Foreign Affairs, Foreign Policy, Il Sole 24 Ore, Le Monde, Liberation, L’Espresso and El Pais. 

    He has a BA and MA in Economics from Hebrew University of Jerusalem and a PhD in Business Economics from Harvard University.

Theme
Global economy and trade
Keyword
trade policy
Language
English

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