President Donald Trump has this week warned he may impose a 25% tariff on goods entering the United States from the EU. During a speech, he claimed that the EU “was formed to screw the United States” and argued that existing trade flows are unfairly weighted against American interests. While details of any forthcoming measures remain unclear, the very suggestion has raised alarms among businesses and policymakers across Europe.
So what does the current trading relationship between the two giant blocs look like? What is the current state of affairs, potential repercussions on both sides of the Atlantic, and how might UK exporters find themselves in a unique position – particularly as the UK has a smaller trade deficit with the US compared to the EU as a whole?
What’s going on?
President Trump’s comments were made in a public address, in which he criticised what he perceived as unfair EU trade practices. Central to his argument is the EU’s trade surplus with the US, which he views as evidence that American companies and workers are not receiving equitable treatment. By threatening tariffs of up to 25%, Trump appears to be pressuring Brussels to reconsider existing trade agreements or forge new pacts more favourable to the US.
These remarks have rekindled fears of an escalating trade conflict, similar to those seen during previous tariff disputes with Mexico and Canada where last-minute offers were presented to appease the Trump administration. At present, however, no official action has been taken, and it remains to be seen if the President’s comments will swiftly translate into concrete policy, or are simply another bargaining chip to get what he wants.
What does the current US/EU trade relationship look like?
Despite periodic disagreements, the US and the EU have traditionally enjoyed a robust economic partnership, exchanging high volumes of goods and services. This long-standing relationship is built on deeply intertwined supply chains and mutual dependence, although it has faced tensions on various fronts over the years.
The EU runs a significant trade surplus with the US, mainly driven by high-value exports such as automobiles, pharmaceuticals, and other manufactured goods. President Trump and others argue that this indicates the US is not getting a ‘fair deal’, although many economists point out that trade imbalances can stem from wider consumer demand patterns and complex global supply chains, rather than outright protectionism.
The most traded products between the two blocs are:
- From the EU to the US: Cars, machinery, chemicals, pharmaceuticals, and luxury consumer items consistently dominate export lists.
- From the US to the EU: American businesses send large volumes of aircraft, technology, medical equipment, agricultural products (like soybeans), and services.
Previous disputes, such as those over aircraft subsidies or digital services taxes, have occasionally strained relations, but rarely led to across-the-board tariffs on this scale. President Trump’s latest warning signals a potentially broader clash.
Potential impact of the proposed tariffs
Should the US enact 25% tariffs on EU goods, the consequences would likely be widespread, affecting companies, consumers, and entire industries both in Europe and America.
EU businesses
European exporters could face immediate cost increases that make their products less competitive in the US market. Industries already in the spotlight – particularly automotive and luxury goods – would likely feel the brunt of the impact, with smaller firms relying heavily on American sales at the greatest risk.
US businesses
While tariffs are aimed at protecting domestic production, they often push up input costs for American firms reliant on European components or raw materials. Increased prices could dent competitiveness and force companies to either absorb losses or pass higher costs to consumers.
Supply chain disruption
Many American and European production processes are interlinked, relying on parts sourced from multiple countries. Tariffs would add complexity, potentially prompting businesses to shift supply chains elsewhere – a costly and lengthy endeavour.
Risk of retaliation
Historically, major economies respond to tariffs with countermeasures, escalating a tit-for-tat cycle. The EU might retaliate by imposing tariffs on key US exports, such as agriculture, technology, or aviation products. Any such moves would add further unpredictability to the business environment on both sides.
Implications for UK-based businesses
The UK’s departure from the Single Market places British exporters in a distinct position: with a less pronounced trade deficit with the US, President Trump may not be as strongly targeted by British goods. If the EU faces steep tariffs and the UK avoids them, this divergence could create opportunities for British businesses to become a conduit for trade between Europe and America.
Potential as a gateway
- Re-exporting EU goods: If UK-based companies act as intermediaries, funnelling goods from the EU to the US, they could capitalise on avoiding direct tariffs—provided that rules of origin and customs obligations can be met without incurring the same duties.
- Rules of Origin complexities: However, navigating rules of origin is crucial. If components or finished products are largely EU-sourced, re-routing through the UK might not automatically sidestep American tariffs.
- Greater investment: If the UK is perceived as a more favourable transatlantic trade springboard, it may attract inward investment from EU businesses seeking to shield themselves from US tariffs. This could stimulate job creation and growth within Britain.
Still, these prospects hinge on the details of any new US–UK trade arrangements, as well as the exact scope of tariffs imposed on EU goods. UK exporters should remain watchful of these developments to gauge how they might leverage any comparative advantages.
Key takeaways for UK exporters
- Monitor policy announcements: Changes can happen swiftly. Stay abreast of official communications from both Washington and Brussels to anticipate potential shifts in tariff regimes.
- Assess supply chains: If you import components from the EU for re-export to the US, review the rules of origin to ensure compliance and limit unexpected costs.
- Plan for contingencies: Diversify trade partners and product lines where possible. Reducing dependence on a single market or region is a prudent strategy in uncertain times.
- Explore new opportunities: If the UK remains exempt from heightened US tariffs, it may be an opportune moment to strengthen relationships with American buyers or form partnerships with EU firms looking for a tariff-friendly route across the Atlantic.
While it remains unclear whether President Trump’s threat will materialise into widespread tariffs, the message is clear: the US–EU trade relationship could be on the cusp of a dramatic shift. For UK exporters, the priority should be staying informed, nimble, and prepared for the potential to both mitigate risks and seize new opportunities as the transatlantic trade landscape evolves.
