USA-EU, prospects in trade relations

February 1, 2025

Donald Trump’s new presidency is heralded as a ‘game changer’ in international trade policies. Threats of duties and other protectionist measures, with foreseeable retaliation by partner countries, could alter trade relations between the US and the EU and reopen disputes that have not yet been resolved, or start new ones. With a possible impact also on the European agri-food sector, whose interests in the US market are well-rooted.

The question to ask is whether Trump’s policy is really aimed at altering a generally serene trade climate with his historical trading partners, or whether these dramatic announcements are merely a negotiating tool to achieve different objectives. Below is a brief analysis aimed at understanding what is happening, and the possible scenarios on the horizon.

1) Introduction

The new American administration, led by Donald Trump from January 20, 2025, identifies trade deficits and the decline in US manufacturing production as two of the most significant challenges to the country’s economic interests. (1)

The new administration’s program therefore includes a drastic reduction in imports, with the consequent aim of restoring balance in the trade balance and giving new impetus to American industrial production.

2) The policy of duties

A universal tariff on imports-between 10 percent and 20 percent on the value of all goods entering the United States, including those coming from the EU-was already announced by Donald Trump in the 2024 election campaign. (2) So was a specific duty of 60 percent, on imports from China. (3)

The motivations put forward for these actions are:

– the rebalancing of the US trade balance;
– the impetus for the creation of jobs on the national territory;
– the revitalization of American industrial production;
– greater control over supply chains;
– access to essential goods.

These are essentially reasons that combine trade policy with security policy and that decline trade policy in different ways from traditional ones.

3) Investments in Made in USA production

The US administration could also influence foreign companies to invest in American manufacturing, supporting a broader goal of decoupling from global supply chains.

This approach is in line with the philosophy “America First” by Trump, (4) but raises questions about its long-term feasibility and potential repercussions, especially considering the complexity of global trade interdependencies.

4) Tariffs as a diplomatic tool

Beyond the economic sphere, the proposed tariffs could serve as a powerful diplomatic tool, providing leverage in negotiations on issues beyond trade. (5)

It seems more and more evident that the United States no longer views trade policy in isolation, but rather as part of a broader toolkit to advance its overarching strategic goals. (6)

5) Geopolitics and national security

These goals are mainly linked to geopolitical and national security concerns, such as competition and the possible global dominance of China on industrial production in various sectors, immigration from Mexico, drug trafficking. (7)

For example, Trump has threatened a 25% tariff on imports from Mexico and Canada unless they implement tougher measures to limit the movement of drugs and migrants into the United States.

6) The case of Europe

In the case of Europe, trade measures could be used to pressure NATO allies to increase defence spending, to address trade imbalances with the EU as a whole or to address disparities with individual Member States. As well as to provide the US with leverage in negotiations on the EU’s broader regulatory agenda in relation to digital policies, climate initiatives, CSDDD, (8) CSRD, (9) deforestation, (10) etc.

In other words, Trump will likely want to see ‘reciprocal tariffs’ and ‘fair’ policies as part of balancing the US trade deficit and the threat of tariffs.

7) Possible effects of the Trump agenda

Although these policies aim to strengthen United States economic and strategic interests, their downstream effects on global markets, consumer behavior, and international relations deserve careful scrutiny.

7.1) Disadvantages for U.S. consumers and companies that depend on imports

One of the most significant disadvantages is seen in the increase in import costs in the United States, with effects that will impact American consumers and US companies that depend on imported goods. (11)

As tariffs increase costs of imported goods, companies that depend on these imports will pass their increased expenses onto the market, resulting in higher prices for consumers. This would disproportionately affect families, with estimates indicating an annual cost increase of more than $2,600 for the typical American family.

7.2) Increases for consumers and businesses

This expense represents a decline of approximately 4,1% in net household income, posing a serious challenge to consumers already facing economic hardship due to inflationary pressures. (12)

U.S. companies that depend on foreign inputs could also face difficulties, especially if they cannot find equivalent or affordable substitutes domestically. These cost increases could undermine the competitiveness of many U.S. firms and potentially reduce consumer spending, slowing economic growth. (13)

8) More domestic production, advantages and risks

While the tariff policy might increase costs for U.S. consumers and businesses that rely on imports, it would have no effect on U.S. companies that rely exclusively on domestic inputs. In addition, tariffs could incentivize U.S. companies to shift production or sourcing domestically, theoretically increasing manufacturing jobs and local economic development.

This attention on localized production, however, must be weighed against the potential inefficiencies and cost increases that occur when supply chains are artificially constrained by autarky politics rather than economic logic.

9) Additional considerations and global implications

A key consequence of the proposed tariffs is the potential detachment of the United States from global supply chains, which could make trade more expensive and disrupt long-standing relationships with foreign suppliers. (14)

Politics could particularly strain sectors where foreign inputs are indispensable, putting US companies at a competitive disadvantage globally. Furthermore, a blanket tariff approach could trigger retaliatory measures by other countries, including the EU, as history has shown that such policies often lead to retaliatory responses from trading partners. Such retaliatory tariffs could harm EU and US exporters by limiting their access to critical markets and affecting sectors that contribute significantly to transatlantic trade and investment, including agri-food.

9.1) Implications for transatlantic trade relations

The implementation of a universal tariff on imports, if extended to goods from the Old Continent, could complicate EU-US trade relations. This approach could be perceived by the EU as a hostile move, leading to a more confrontational position on trade. In response, the EU could, in turn, impose its own retaliatory tariffs, particularly if the general tariff disproportionately affects sectors that are critical to the European economy, such as automotive, pharmaceuticals, machinery or agri-food products.

Similar diatribes are not new. It is enough to recall the dispute on steel and aluminum (arising from the imposition of duties on steel and aluminum, decided by the USA, and the consequent retaliatory response of the EU with the application of tariffs on 180 agricultural, industrial and manufactured products), (15) which lasted from 2018 to 2022, and the dispute on civil aircraft within the WTO (Airbus-Boeing). (16)

Both disputes are not yet fully resolved. Finally, it is worth recalling the dispute over ripe olives between the EU and the USA. (17)

10) The dispute over ripe olives

The EU-US ripe olives case stemmed from the EU’s challenge of countervailing and anti-dumping duties introduced by the United States on ripe olive imports from Spain. In 2018, the U.S. Department of Commerce determined that Spanish ripe olives were subsidized under the EU Common Agricultural Policy and sold in the U.S. at less than ‘fair’ value, which led to the imposition of tariffs.

EU challenged these measures at the World Trade Organization, arguing that they violated the Agreement on Subsidies and Countervailing Measures (SCM Agreement) and the Anti-Dumping Agreement (ADA). In November 2021, a WTO panel ruled largely in favor of the EU, finding that the United States had improperly determined the existence of subsidies and had applied tariffs inconsistently with WTO rules.

10.1) WTO recommendations

Following the recommendations of the WTO panel, the United States initiated a proceeding under Section 129 to bring its measures into conformity. On January 19, 2023, the United States published a notice in the Federal Register detailing adjustments to its subsidy rate calculations and specificity determinations, with the goal of aligning with WTO requirements.

Despite these efforts, the EU remained dissatisfied with the US compliance measures. In May 2023, the EU requested the establishment of a WTO compliance panel under Article 21.5 of the Dispute Settlement Understanding to assess whether the U.S. had fully implemented the recommendations.

10.2) EU sanctions on the United States

On November 25, 2024, during the regular meeting of the Dispute Settlement Body, the EU expressed disappointment that, despite the adoption of the Compliance Panel’s report on March 27, 2024 and multiple efforts at the political level, the United States has not taken any measures to address the situation.

For this reason, the EU has requested permission to impose trade sanctions on the United States, as allowed by WTO rules, to pressure the U.S. to follow the Panel’s recommendations and resolve the problem.

11) Disputes to be resolved

If the disputes are not permanently resolved, it is likely to exacerbate tensions in an already sensitive trade relationship. Such disputes could also hinder collaboration on broader economic issues, from digital taxation to climate initiatives, where U.S.-EU alignment is increasingly critical.

The new trade policy would introduce a high-risk protectionist strategy that, while aimed at strengthening domestic industries, poses significant risks to U.S. consumers, import-dependent companies, and global trade relations.

12) Provisional conclusions

The aggressive tariff approach could trigger retaliatory action by key trading partners, including the EU, potentially escalating into a cycle of economic measures that undermine the global trading system. For the EU-US relationship, these tariffs could reignite previously dormant trade disputes, complicating efforts to cooperate on broader strategic issues.

The EU-U.S. partnership, the world’s largest trading relationship, is at a critical juncture, and the extent to which both sides are prepared for a contentious shift in U.S. trade policy could shape the future of transatlantic cooperation.

Stefania Tatti, Dario Dongo

Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.