Tariff Tug-of-War

Ursula von der Leyen, President of the European Commission, during her speech at the World Economic Forum in Davos, Switzerland, January 21, 2025. Photo via The World Economic Forum

***

In global trade, the United States has long viewed Europe as a reliable ally—just not an equal one. With the chance to firmly establish themselves as an equal partner rather than a junior partner, Europe may instead find itself pulled into a familiar game of tug-of-war. 

President Donald J. Trump sees tariffs—domestic taxes on goods from other countries—as a central part of his economic plan. Back in March 2018, during his first term, he imposed a 25% tariff on steel and a 10% tariff on aluminum, declaring that “trade wars are good, and easy to win.” With claims to cut the trade deficit and boost domestic manufacturing, Trump extended the tariffs to the EU, Canada, and Mexico in June. The EU responded by imposing retaliatory tariffs, targeting about 2.8 billion euros of U.S. goods. After some back and forth, former President Joseph Biden partially removed the tariffs during his term and landed a temporary truce with the EU, Japan, and the UK. 

With Trump back in office and Joe Biden out, the looming tariffs are again on the table. On the evening of Monday, February 10, 2025, Trump signed executive orders imposing 25% tariffs on steel and aluminum imports, effective March 12, 2025—but this time without any exceptions or exemptions. European Commission President Ursula von der Leyen promptly responded with a vow to take “firm and proportionate” measures against the tariffs.

Trump has also begun the process of issuing reciprocal tariffs, meaning that the U.S. would impose the same levies on imported goods that a country places on what they import from the U.S. By issuing these tariffs, Trump aims to counteract “unfair” taxes that have been imposed on the U.S.—mainly focusing on value-added taxes (VATs), a popular type of sales tax in the EU. This creates a logistical and diplomatic nightmare. Different types of goods charge different taxes, and by targeting VATs, the U.S. risks upending relations with the EU—one of its largest trading partners.

While the implications of the EU’s measures remain unclear, relations between the EU and the U.S. risk escalating into a full-scale trade war with severe economic consequences for both sides. If history is any indication, the tariff threats may provoke similar EU countermeasures that we saw during Trump’s first term. Treasured U.S. industries—often based in Republican-voting states—such as bourbon, jeans, and motorcycles, should brace themselves for becoming a potential target again. Alternatively, with 20% of U.S. steel imports from Europe, tariffs are expected to make European steel more expensive and less competitive in the U.S. market. Major steel-producing countries like Germany and Italy are vulnerable to facing significant damage. With their trade volume at approximately $1.5 trillion, representing about 30% of global trade, both sides have much at stake. 

Consequently, they won’t be the only ones paying the price. Consumers are also expected to feel the weight of these tariffs. From electronics and footwear to everyday essentials, economists fear this round of tariffs will hit consumer goods even harder than last time. Trump has also vowed to impose tariffs on Canada and Mexico, which could disrupt supply chains and drive up costs for groceries, gas, and cars. The Peterson Institute for International Economics has projected that these new tariffs would cost middle-class U.S. households an additional $1,700 in increased taxes each year. So, despite running an entire campaign focused on economic prosperity, it seems that Donald Trump is not seriously committed to his promise of reducing inflation or lowering prices for Americans. 

But beyond economics, the political stakes are just as high. The tariffs risk straining diplomatic ties by exacerbating tensions between the U.S. and EU. European leaders have been clear in condemning Trump’s “unjustified” tariffs, with various leaders such as German Chancellor Olaf Scholz calling for European solidarity. By prioritizing protectionism over international cooperation, the U.S. not only risks isolating itself from key global partners, but also reinforces the idea that Europe is merely a secondary player in the transatlantic relationship. With Trump’s recent pivot to Russian President Vladimir Putin, whom he has been far less critical of compared to the EU and Ukraine, European allies are finding themselves sidelined. Perhaps this signals something greater than protectionism; is this foreshadowing a betrayal of America’s traditional role in the G-7? Has Trump completely abandoned any intention to cooperate? International audiences are watching as the Trump administration taints the country’s image as an unpredictable adversary that can no longer be trusted with global leadership.

As EU commissioner Maroš Šefčovič put it, the new U.S. tariffs are “a lose-lose scenario,” and the “time has come” for Europe to respond. The question here is how Europe will respond when faced with the tariffs. It will be interesting to see if the EU will protect its interests the same way the U.S. is protecting its own, and whether or not the EU will take this opportunity to strengthen its own economic sovereignty or get caught in another cycle of retaliation.

French President Emmanuel Macron has long advocated for a more assertive and competitive EU stance. In response to the latest tariffs, he argued that “the European Union has to be ready to deliver what we want and what we need for ourselves”. Macron has repeatedly urged the EU to increase defense spending to safeguard Europe’s interests in the face of uncertainty. As the global economic climate shifts, European leaders must ensure they can stand on their own two feet without an overreliance on external powers. Macron’s wake-up call to the European Union reflects an even bigger issue—at the core of these tensions lies a difference in how the EU and U.S. under Donald Trump view alliances and the world. While Trump has maintained a more transactional view of alliances, Europe has remained committed to preserving them. So, a united EU stance on tariffs could serve as a defining moment in shaping the future of the transatlantic alliance and the global order. 

By most metrics, the situation appears disastrous. From geopolitical conflicts in Ukraine and the Middle East, to rising AI innovations, the new tariff impositions not only come at a horrible time for the continent, but they also raise the question of whether or not imposing tariffs on Europe should even be at the top of America’s agenda right now. The U.S. has also pursued an “America First” approach to foreign policy, prioritizing the interests of the American people above all else. Of course, in a democratic nation where voters elect leaders to serve the American public, they must prioritize the interests of their own country. However, severing relations with our European allies, which hurts American businesses and consumers in the process, does not seem to serve America’s best interests—especially if the country wishes to maintain a united partnership with Europe as an ally in security, defense, and the global economy. As the country continues down this path, its “America First” approach to foreign policy inches closer to “America Alone.” 

Prioritizing economic protectionism may (or may not) provide a short-term solution to the U.S. trade deficit, but it will also be accompanied by long-term devastating consequences for businesses, consumers, and global alliances. For now, with so many unpredictable factors at play, we can only wait and see how both sides will respond to the tariff imposition in the coming weeks. One thing is certain, though: any escalation of a trade conflict would result in significant losses for both sides.

Because, as we all know, trade wars are neither good nor easy to win.

***

This article was edited by Connor Downey and Eve Salazar.