EU hits back at US with counter-tariffs

Even as US President Donald Trump imposed 25 per cent tariffs on steel and aluminium imports, the European Union (EU) hit back with tariffs on American goods like peanuts, soybeans, whiskey, beef, poultry, and wood products. The EU is not calling the counter-measures as retaliatory tariffs, but describing them as “rebalancing measures”.

European Commission President Ursula von der Leyen said, “We deeply regret this measure. Tariffs are taxes. They are bad for business, and even worse for consumers. These tariffs are disrupting supply chains. They bring uncertainty for the economy.”

President Trump has stuck to his belief that by raising tariffs on imports he will bring back manufacturing units to America, and this will help in creating jobs. But there is no prospect of this happening. Von der Leyen said, “As the US are applying tariffs worth 28 billion dollars, we are responding with countermeasures worth 26 billion euros.”

The American Chamber of Commerce to the EU said the American tariffs and the EU countermeasures “will only harm jobs, prosperity and security on both sides of the Atlantic. The two sides must de-escalate and find a negotiated outcome urgently.” The EU is hopeful that negotiations will follow and compromises made. Interestingly, this is not the first time President Trump had imposed tariffs on European steel and aluminium imports. He did it in his first term (2016-20), and the EU responded with counter-tariffs and the stand-off continued between 2018 and 2020, and America removed tariffs when President Joe Biden took office in 2021.

Canada is preparing to announce retaliatory tariffs as well. Right now, it is a tariff war without pause. Trump’s tariff measures got a thumbs down from the markets, and this came at a huge cost, with market valuation wiping off four trillion dollars’ worth of shares.

Is Trump tilting at the windmills in the classic quixotic fashion? It seems so because there is no economic rationale behind his decision to impose what he calls reciprocal tariffs. He and his aides believe that America has lost its manufacturing base because it allowed almost free entry for foreign manufacturers. The truth is more complicated. Other countries like Japan, Taiwan, South Korea, and China began to produce goods at a fraction of the cost of goods manufactured in the US. Secondly, the US had lost its technological capacity of Europe, especially Germany. So the quality of steel and aluminium made in Europe and Canada was also superior to that made in the US. So, the American consumer will have to pay a higher price for quality manufactures because of the rise in tariffs. And it is punishing the American consumer for preferring a quality product.

President Trump is displaying the siege mentality. He believes that the United States is surrounded by trade partners who have an easy access to American markets and that they are exploiting America and America is paying out without gaining anything worthwhile in return.

But by imposing punitive tariffs on friendly trade partners like Canada, Mexico and the EU, Trump is turning America into a state under economic siege. Trump-watchers in America and elsewhere believe that Trump is pragmatic and he will soon correct course. The truth however is that he did not do any course correction in his first term, and it may not be realistic to expect that he will do so this time round.

The great danger of his erratic economic policy is America is on the verge of going into a recession. And when America goes into recession, it drags down the global economy with it. That is why, business leaders around the world hope are praying that Trump sees reason as soon as possible.