After weeks of bracing for the hammer blow of US president Donald Trump’s across-the-board tariffs, the European Union now has to decide how hard it wants to hit back.
Mr Trump announced that nearly all trade coming into the US from EU states would be subject to steep 20 per cent tariffs, which are basically taxes on imports.
The European Commission, the EU’s executive arm that leads the bloc’s trade policy, has indicated that “nothing is off the table” in response.
Next week EU capitals are due to vote on a plan to put tariffs on €26 billion worth of US goods, such as soybeans and Harley Davidson motorbikes. Those were already in the works, to retaliate against duties Mr Trump hiked up on steel and aluminium last month.
The sweeping tariffs the White House announced on global imports this week, will require a much broader response from the EU.
That could mean the bloc ups the ante with a second package of tariffs on US products. Another option being explored is EU tariffs on services, rather than goods, which could potentially target US tech and social media giants.
Internal commission analysis indicates EU businesses would end up paying €81 billion in trade tariffs, due to Mr Trump’s “Liberation Day” measures. To put that in some context, the US collects about €7 billion in tariffs from EU exports in a normal year. So in the face of much steeper costs, the amount of goods sold across the Atlantic from EU states will drop off.
There is a range of views within the EU about how firmly the commission should respond. Ireland is the most exposed to a tariff war, given the huge amount of trade it does with the US.
Both publicly and privately the Government has been calling for caution. Other EU states want to be more aggressive, in a bid to inflict some economic pain and hopefully encourage Mr Trump to strike a deal where both sides suspend their tariffs.
Commission officials have spent months thinking about what US products the EU could target. There is a recognition that whatever they settle on may draw another volley of tariffs from the US in retaliation.
The suggestion that US bourbon would be subject to tariffs led Mr Trump to threaten duties of 200 per cent on whiskey, wine and champagne coming from Europe.
Ireland, Belgium and Denmark are worried about pharmaceutical exports, France and Italy want to protect sales of wine and cheese, Germany is concerned about their carmakers.
If the EU wants to project a strong and united front, it will have to make sure the coming days and weeks do not descend into all 27 member states bickering to protect their own patches.
