Despite it being a close political, military, and trading ally, Trump increased his attacks on the trading bloc while warming up his approach to China.

Hot off the back of a visit from France’s President Emmanuel Macron, yesterday Trump told his Cabinet that the EU would face—”generally speaking”—a 25% hike on its exports, focused on “cars and all other things.” This is in addition to a wider hike on aluminum and steel imports—industries which are often based in Europe.

This tactic could prove inflationary for both American and European consumers, who are likely to face increased costs if a trade war ensues.

In 2023, the U.S. had a trade surplus with the EU in terms of services, while the EU held a respective surplus for goods. While overall the EU held a total surplus worth €48 billion ($50.3 billion) this represented just 3% of the €1.6 trillion ($1.68 trillion) trade flow between the parties.

The value of the relationship cannot be overstated, and hence the economic fallout could be wide-ranging: The EU is the second-highest consumer of U.S. goods behind Canada and the top purchaser of U.S. services. If this demand were to shift elsewhere, American businesses could suffer.

Likewise, U.S. consumers will notice higher prices for many of the items they buy on a day-to-day basis: America imported $553.3 billion worth of goods from the EU in 2022, its top supplier.

The countries are also heavily invested in one another, with €5.3 trillion ($5.55 trillion) sunk into each other’s markets.

Despite saying that he “loves the countries of Europe,” Trump followed up on the tariff announcement by claiming the EU had been formed to “screw” the United States, saying: “That’s the purpose of it. And they’ve done a good job of it.”

History would disagree. The EU was formed in the wake of the Second World War, which divided the continent and killed tens of millions of its citizens.

Even the U.K., which has since decided to leave the EU, explains the group was formed with “the aim of never again allowing human rights atrocities such as those committed by Germany.”

What’s the current trade arrangement?

If Trump were to place economic sanctions on the EU, it would mark a shift in policy and a departure from the laissez-faire approach to negotiations the duo has adopted in recent years.

No free-trade agreement is explicitly in place between America and the EU nations, which include the likes of Germany, France, Spain, and Italy.

Negotiations to formalize trade under the Transatlantic Trade and Investment Partnership (TTIP) were launched in 2013 but ended in 2016 with no conclusion. In 2019 the matter was closed, with the EU saying the “negotiating directives have become obsolete.”

Since then, tweaks to duties and tariffs on niche markets have been confirmed. For example, in 2020 the EU said it would drop all tariffs on imports of U.S. lobster, while the U.S. reduced its tariff rate by 50% on products such as prepared meals, crystal glassware, and cigarette lighters.

On the campaign trail and since his inauguration, Trump has continued to pile pressure on the European Union in terms of both trade and contributions to NATO, with countries like the United Kingdom (which is not a member of the EU but is in Europe) and Germany already falling into step.

Yet the EU has already indicated it won’t be taking all of the Oval Office’s demands lying down.

Earlier this month—prior to the 25% announcement and speaking on the steel and aluminum tariffs—the EU said: “The EU sees no justification for the imposition of tariffs on its exports. We will react to protect the interests of European businesses, workers, and consumers from unjustified measures.”

Following yesterday’s announcement, a spokesman for the bloc told media, “The EU will react firmly and immediately against unjustified barriers to free and fair trade, including when tariffs are used to challenge legal and non-discriminatory policies.”

Of course, it remains to be seen whether this will be necessary. After all, the similar tariff threats Trump held over Canada and Mexico have been delayed.

Trump on Xi

By contrast, President Trump is positively genial toward China after imposing an additional 10% tariff on the nation upon his return to the White House.

Despite an ongoing sanctions back-and-forth with China, Trump told reporters during his cabinet meeting yesterday: “I have a great relationship with President Xi, I’ve had a great relationship with him. We want them to invest in the United States, that’s good, that’s a lot of money coming in and we’ll invest in China—we’ll do things with China.

“We’re going to have a good relationship with China but they won’t be able to take advantage of us.”

The president also distanced himself from the Taiwan debate, with China insisting it is part of its territory while Taiwan maintains its sovereignty.

“I never comment on that,” President Trump told a reporter. “I don’t comment on any of it because I don’t want to ever put myself in that position.”

Instead, he repeated his “great relationship” with President Xi and added: “I see so many things saying that we don’t want China in this country—that’s not right. We want them to invest in the United States… The relationship we will have with China will be a very good one.”