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"Tariffs All the Way?": Why Trump’s Trade War Gambit Threatens Transatlantic Prosperity

24 April 2025 by
"Tariffs All the Way?": Why Trump’s Trade War Gambit Threatens Transatlantic Prosperity
Office LYMEC
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The re-election of Donald Trump has reignited anxieties about the fragility of the global trading order. Barely days into his second term, Trump took to social media to threaten sweeping tariffs on European goods—ranging from automobiles to agricultural products—unless the European Union agrees to dramatically increase imports of American oil and gas. “Otherwise, it is TARIFFS all the way!!!” he posted on Truth Social . The threat marked a familiar return to the aggressive, transactional trade tactics of his first administration, where Section 232 tariffs on European steel and aluminium triggered retaliatory duties from Brussels. This time, however, the scale is broader and the stakes are higher. On 2nd April—Trump’s self-declared “Liberation Day”—he imposed a 10% blanket tariff on all US imports, with additional tariffs ranging from 11% to 50% scheduled to take effect on 9 April for 57 countries, though ultimately suspended for all but China.

The European Commission responded with equal urgency. After Trump’s 2 April announcement of a 20% tariff on EU goods, Brussels approved a 25% retaliatory tariff package due to take effect 15 April, though it later agreed to pause implementation for 90 days. President Ursula von der Leyen warned that if talks fail, the EU will deploy its "trade bazooka"—a sweeping arsenal of measures including a digital services levy and restrictions on US tech firms. Trump’s justification for these tariffs—an alleged trade imbalance—is misleading. The US held a €155.8 billion goods trade deficit with the EU in 2023 but also enjoyed a €104 billion surplus in services. In total, transatlantic trade exceeded €1.5 trillion that year .

Trump’s economic rationale is further undermined by criticism from economists whose work was cited by the White House. Many have argued that the administration’s “reciprocal tariff” formula misinterprets their findings, distorts trade balances, and risks global recession . His zero-sum approach ignores the deep integration of supply chains and the mutual benefits of liberalised trade. Already, market uncertainty and business sentiment have taken a hit.

The fallout is visible across key sectors. Trump’s 25% tariff on car imports announced 27 March disproportionately targets Germany, the EU’s largest automobile exporter. In 2024, EU car exports to the US exceeded €38 billion. New tariffs threaten jobs, production, and cross-border supply chains. Tariffs on auto parts and subassemblies jeopardise just-in-time manufacturing systems. In agriculture, Trump's threatened 200% tariff on EU wine and spirits—retaliation for tariffs on US whiskey—endangers a €4.5 billion export market. The ECB projects that such tariffs could add 0.5 percentage points to eurozone inflation , while US households may lose $1,700-2,600 annually.

More troubling is the weaponisation of tariffs as geopolitical tools. Trump has linked tariff threats to unrelated policy demands, such as Europe’s LNG imports and regulatory actions against American Big Tech. The EU views this as economic coercion. In response, it has readied the Anti-Coercion Instrument (ACI)—initially designed to counter China—which could now be used against Washington . The ACI empowers the EU to target services and public procurement access, and Brussels is openly considering a digital advertising tax .

Trump’s strategy also seeks to divide Europe. He has floated selective exemptions for countries like Hungary and Italy—an attempt to fracture EU unity . Yet the European Council remains committed to collective action. Brussels’ retaliation strategy targets symbolic exports from Republican strongholds—soybeans from Louisiana, beef from Kansas, cigarettes from Florida—deliberately pressuring Trump’s political base.

Markets have reacted with volatility. Trump’s surprise tariff hike and rapid reversals have rattled investor confidence. The euro strengthened, gold prices surged, and capital began flowing out of the dollar amid rising uncertainty. Deutsche Bank analysts warned of a "permanent sense of unpredictability" in US policy.Simultaneously, China raised its tariffs on U.S. goods to 125%, prompting the United States to retaliate with tariffs of up to 245% on Chinese imports—an unprecedented escalation in the ongoing trade war.

Despite the chaos, the EU has not abandoned diplomacy. On 7 April, EU leaders offered Washington a “zero-for-zero” industrial tariff agreement—reminiscent of the shelved Transatlantic Trade and Investment Partnership (TTIP). Yet von der Leyen has made clear: if negotiations fail, retaliation will be swift and expansive. The EU is also taking steps to prevent the diversion of Chinese goods targeted by US tariffs into the European market, considering safeguard mechanisms to limit such imports.

The liberal alternative to trade nationalism lies in renewed multilateralism and internal reform. Europe must modernise the WTO, finalise trade deals with Indo-Pacific partners, and complete the Single Market. Strategic autonomy must be built on cooperation—not isolation—and defensive tools like the ACI must be paired with proactive alliances and economic openness .

As Macron has stated, “You cannot have a trade war with China and Europe at the same time”. Trump’s tariffs test Europe’s unity, resolve, and credibility. The EU must respond with strength, not escalation—with vision, not vengeance. Trade, when grounded in shared rules and liberal values, can remain a pillar of peace.

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*The views expressed herein are those of the author(s) alone. These views do not necessarily reflect those of LYMEC.





"Tariffs All the Way?": Why Trump’s Trade War Gambit Threatens Transatlantic Prosperity
Office LYMEC 24 April 2025
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