Europe draws up retaliatory tariffs for US in case no trade deal is reached

The European Union is readying a list of $84bn worth of American products that will be hit if a trade deal isn’t reached by Donald Trump’s August 1 deadline.

European Commission president Ursula von der Leyen. Picture: AFP.

The European Union is readying a fresh list of American products – ranging from aircraft to alcoholic beverages, coffee and medical devices – to be hit with retaliatory tariffs if a trade deal isn’t reached by President Donald Trump’s August 1 deadline.

EU officials on Monday unveiled the list after Mr Trump’s latest tariff threat over the weekend revived a debate in the bloc over whether it should fight back, and how forcefully, if the two sides cannot reach a deal.

The EU in April froze an initial package of retaliatory tariffs against the US after Mr Trump said he would limit blanket tariffs on most countries to 10 per cent for 90 days. The new EU list, circulated to the bloc’s 27 member states and viewed by The Wall Street Journal, covers American imports that were together valued at roughly $US84bn ($128.3bn) last year.

The list covers about $77bn worth of industrial imports, including aircraft, machinery, automotive products, chemicals, plastics and medical devices. It also covers about $7bn worth of agricultural and food products, such as fruits and vegetables, wine, beer and spirits.

European officials are debating what would trigger those tariffs, and whether to go further by preparing additional measures that could put levies or other restrictions on American services, not just physical goods.

The EU’s approach to US tariffs is getting renewed attention this week after Mr Trump sent a letter to the bloc threatening to impose 30 per cent blanket tariffs on European imports beginning August 1. The move surprised EU officials who thought they were close to a preliminary agreement with the US

Mr Trump on Monday said “the deals are already made. The letters are the deals … There are no deals to make”. He added that recipients of his letters “would like to do a different kind of a deal, and we’re always open to talk … including to Europe”. EU trade chief Maros Sefcovic on Monday said a 30 per cent tariff would be “effectively prohibitive” to trade between the two economies. He said he would continue to talk with US officials. “I cannot imagine walking away without genuine effort,” he said.

But Mr Sefcovic added that ministers from the EU’s 27 member states who met in Brussels on Monday were clear that if no deal could be reached, the bloc would need to take steps to protect the economy by imposing what he referred to as rebalancing measures on the US

During the EU meeting, shortly before Mr Trump’s comments at the White House, the view that the bloc must respond if it can’t reach an agreement “was the strongest I’ve witnessed since we started the discussion with the US”, Mr Sefcovic said. “Everything is on the table, but we’ll take it step by step.”

One way to demonstrate the bloc’s power, some European officials argue, is through an untested legal tool known as the anticoercion instrument, which could allow for levies on American services, among other measures. US services exports to the EU include financial services and digital products such as online advertising. It is unclear exactly how the EU might wield the instrument in a trade fight with the US.

Other options under the anticoercion instrument include restricting American companies’ intellectual property rights in Europe or making it harder for them to participate in public tenders. European Commission president Ursula von der Leyen suggested in April that the EU could consider a levy on American tech companies’ digital advertising revenue.

Ms von der Leyen said on Sunday that the EU would continue to negotiate until August 1. She said the anticoercion instrument is for extraordinary situations, adding “we are not there yet”. A challenge for the EU in considering any potential retaliation is that Mr Trump has linked tariffs to policies unrelated to trade. The bloc continues to depend on the US for security in Europe, and officials worry that Mr Trump could once again cut support to Ukraine, after announcing on Monday that the US would sell Europe weapons to arm Kyiv’s forces.

The EU last week was closing in on a deal that would require it to accept blanket US tariffs of 10 per cent on most goods, The Wall Street Journal has reported. Some EU countries view the idea as a major concession. Officials hope such a deal could give the bloc some protection from further increases.

The two sides had discussed possible exceptions from the blanket levy, including for spirits, aircraft and their components. The EU had also sought relief for its automotive sector, which now faces 25 per cent US tariffs.

The bloc’s discussions on retaliation were largely paused in recent weeks as officials focused on trying to secure a deal with the US.

An initial package of tariffs – which would target more than $US24bn worth of American imports, ranging from chewing gum to motorcycles and peanut butter – was approved in April in response to US metals tariffs. It was swiftly put on hold, however, after Mr Trump paused some of his tariffs to allow for negotiations. That package had been due to take effect this week, but the commission said on Sunday it would keep it on hold until early August.

The bloc’s second proposed package of retaliatory tariffs, which was presented to member states on Monday, was pared back to cover US imports valued at roughly $US84bn, down from an earlier level of about $US111bn, after consultations with industry and member states. The new package still needs the formal approval of member states.

“There’s an old saying, if you want peace, you have to prepare for war,” Danish Foreign Minister Lars Lokke Rasmussen said on Monday about EU trade preparations. “I think that’s where we are.”

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