Tweet, Threat, or Turning Point? The Transatlantic Trade Test

US President Donald Trump has tweeted that, due to stalled trade negotiations, he is recommending a 50% tariff on imports from the EU starting June 1. The tweet is a threat, a tactic, an outburst, or a combination of all three in the context of ongoing economic talks between Washington and Brussels. 

The implications of such a tariff for financial markets, companies, and workers would be problematic for the United States. But the president’s use of the term “recommending” stands out, as does the absence of any mention of national security concerns as justification for the move.

The United States and the EU have already been engaged in intense negotiations for a few weeks. The bloc had offered a package that includes tariff reductions, work on non-tariff barriers, building on past economic security work to jointly tackle Chinese overproduction and other distortions, and purchases of American liquefied natural gas and agricultural products.

Details started to leak in recent days about elements in the package. Washington, however, has been pushing for additional unilateral concessions and offering to reduce some of the recently enacted reciprocal and Section 232 tariffs in return.

Unlike tariffs on China, tariffs on Europe will have a larger impact on American jobs and manufacturing output due to the trillions of dollars in transatlantic investment. More than 5 million Americans are employed by European companies in the United States, and 5 million Europeans work for US companies in Europe. Most US-EU trade is intra-company and includes parts to assemble cars, ingredients for pharmaceutical products, and specialized machinery for semiconductor manufacturing. The imposition of a 50% tariff would scramble integrated transatlantic supply chains, contributing to shortages or slowdowns on assembly lines. European retaliation on the same level would compound the damage.

The president’s statement also demands more detail. Would a 50% tariff come on top of the existing 10% reciprocal tariff and the Section 232 levies on autos, steel, and aluminum? Also, does this herald a fundamental change in US foreign policy? The president, after all, tweeted that "The European Union, which was formed for the primary purpose of taking advantage of the United States on TRADE, has been very difficult to deal with.” Since 1945, the United States has seen a strong, unified Europe as a valuable partner in international affairs and, until the 1990s, a safeguard against the Soviet Union. And US businesses have long seen Europe as a significant commercial opportunity, even supporting the Marshall Plan to rebuild the continent’s postwar economies as markets for US manufacturing.

Trump’s use of tariffs and trade tools to achieve geopolitical rebalancing continues. The real reason for this recent tweet will play out over the coming days.