Donald Trump makes risky bet by rekindling his trade war with the EU

Donald Trump loves to make deals. And he may be calculating that his sudden escalation of tariffs on the EU will squeeze Brussels into making big concessions as he opens a new front in his global trade war.

But it is a risky bet. Although trade talks between the US and the EU had been moving slowly, Trump’s threat to put 50 per cent tariffs on all imports from the bloc from June 1 has raised the economic and diplomatic stakes dramatically.

The move threatens to jeopardise a recent recovery in global equity prices triggered by Trump’s tilt towards dealmaking and de-escalation with other trading partners, including the UK and China. It could also further damage strained transatlantic relations.

The gamble reflects the frustration of the president and his top officials with what they view as the EU’s obstruction in the negotiations — and a belief that Brussels will concede first or suffer more than the US if there is no deal.

“It’s a classic Trump bullying tactic, it’s what he does. If he doesn’t get what he wants, he pushes back and makes more threats, and then he waits to see what happens,” said Bill Reinsch, a trade policy expert at the Center for Strategic and International Studies in Washington.

“It’s intended to get the Europeans to back down — my reading of them is that they won’t,” he added.

In the Oval Office on Friday afternoon, Trump insisted he wasn’t looking for a quick agreement with Brussels, and vowed that the 50 per cent tariffs would take effect on June 1 as planned. “That’s the way it is,” he said.

US Treasury secretary Scott Bessent told Fox News that the purpose of the planned tariffs was to “light a fire under the EU” — suggesting that there was some leeway for negotiations before or after the June 1 deadline.

But the brinkmanship creates uncertainty, warn economists. “The proposed tariffs on the EU highlight a key forecast risk, whereby tariffs remain an ongoing tool to be wielded by the Trump administration whenever negotiations hit a snag. Repeated tariff threats and rollbacks will keep policy uncertainty elevated,” consultancy Oxford Economics wrote in a note on Friday.

Washington’s precise demands on Brussels are unclear. In his social media post on Friday, Trump rattled off his dissatisfaction with many aspects of EU tax, regulatory and trade policy that would be hard to address quickly.

Trade experts in Washington say the administration is frustrated that the EU’s offers are no different from those it has made to the US in the past.

“Normal methods of diplomacy and traditional approaches to trade negotiations have not resulted in a US-EU trade agreement by any administration. So I’m not surprised to see the president take a very different tack with the EU,” said Kelly Ann Shaw, a former White House official during Trump’s first term, and a partner in international trade policy at law firm Akin Gump.

“These threats of much higher tariffs do create an action forcing event, where the two sides are either going to come to an agreement or they aren’t,” she added.

“The American point of view is that the Europeans don’t understand that this time is different, and it’s not a conventional negotiation,” said Reinsch at CSIS.

On Friday, EU trade commissioner Maroš Šefčovič spoke with US commerce secretary Howard Lutnick and trade representative Jamieson Greer, but there did not appear to be a breakthrough.

“EU-US trade is unmatched & must be guided by mutual respect, not threats. We stand ready to defend our interests,” Šefčovič wrote on X after the discussions.

EU officials chafe at Trump’s demands, questioning why the world’s biggest trading bloc should offer unilateral concessions.

They argue that there is only about a 1 percentage point difference between EU and US tariffs and say that value added tax is roughly equivalent to US sales tax.

Brussels is also reluctant to give the US market access denied to other countries, which would breach World Trade Organization rules.

Officials also point out that while trade policy is handled by the European Commission, many of the barriers the US has issues with are national. 

“EU negotiators should hold their nerve. It certainly signals Washington’s edginess and impatience to get a deal,” said Georg Riekeles, associate director at the European Policy Centre in Brussels.

Riekeles urged the EU to copy Canada and China by retaliating strongly. “If the EU is ready to fight back, US bullying and escalation is ultimately so self-harming that you can enter deal territory.”

However, countries such as Ireland and Italy, which rely on US exports, have lobbied hard against strong countermeasures — and Trump will be counting on schisms within the bloc to force the EU’s hands.

But Michael Smart, a former Democratic congressional trade counsel at Rock Creek Global Advisors, a consulting group in Washington, warned that “if Trump’s plan is to divide the bloc, it likely will have the opposite effect”.

Most member states have so far backed the commission’s approach of engaging but eating up time, believing that eventually Trump will back down because of the damage his tariffs will inflict on the US economy. They have indicated that Brussels is minded to stand firm.

“One of the reasons markets have calmed down is that they have already factored in more concessions from Trump,” said one EU diplomat.

“We don’t make policy decisions on the basis of tweets, at least not on this side of the Atlantic,” said another.