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[Global Times Special Correspondent in Germany Zhaodong Global Times Special Correspondent Zhen Xiang] Due to concerns about the uncertainty of trade policies brought about by the results of the US election, the EU is formulating corresponding strategies. The Financial Times reported on the 29th that if Trump returns to the White House, EU officials intend to respond with a "carrot and stick" approach. The Financial Times called it a "two-step" strategy: the first step is to throw out the "carrot". If Trump wins the election, EU negotiators will immediately contact Trump and seek to quickly reach a trade agreement with the US. The key content is that the EU will increase imports of US goods to avoid Trump's imposition of tariffs on EU products. If not, then wield the "big stick" and fight back by imposing tariffs on US goods. It is said that the EU is drawing up a list of imported US goods, and the goods on the list may be subject to tariffs of 50% or more.

A cargo ship loaded with containers docked at the Port of Hamburg, Germany. (Visual China)

The EU may lose 150 billion euros every year

According to data from the European Statistical Office, the EU exported goods worth 502 billion euros to the United States last year, and imported goods worth 344 billion euros from the United States. The EU's trade surplus with the United States last year was 158 billion euros. The United States is the EU's largest destination for goods exports, accounting for 19.7% of the EU's total exports; the United States is also the EU's second largest source of goods imports (after China), accounting for 13.7% of the EU's total imports. In the first quarter of this year, the EU's trade surplus with the United States reached a record high of 43.6 billion US dollars, a year-on-year surge of 27%. Fortune magazine in the United States said that transatlantic trade showed a trend of continued increase in the EU's unilateral surplus.

Trump has been claiming that he will impose a minimum tariff of 10% on US imports after taking office. The Financial Times said that if Trump implements this policy after taking office, the EU's annual exports may decrease by 150 billion euros. According to Bloomberg News earlier this year, Trump is considering taking countermeasures against the EU's restrictions on the digital service tax of US technology giants, including a "301 investigation" on European goods. Gingrich, former US House Speaker and Trump ally, claimed: "The EU uses various means to trip up US companies... I know he (Trump) attaches great importance to tariffs because tariffs can bring bargaining chips."

The Financial Times noted that EU Trade Commissioner Valdis Dombrovskis recently made overtures to the US on EU-US trade issues. He said: "Europe and the US are strategic allies, and the two sides should cooperate on trade issues, especially in the current geopolitical environment." But at the same time, he also said: "The EU has used tariffs to defend its own interests in the past, and we are ready to defend our interests again if necessary."

The effect of "carrot and stick" is unpredictable

However, it is still difficult to predict how effective the EU's "carrot and stick" combination will be on "Trump 2.0". In fact, neither the EU's "carrot" nor the "stick" seems to be strong enough.

EU officials believe that it is difficult for the EU to significantly increase the total amount of US imports, because the EU imports mainly bulk commodities from the US, while exports to the US are mainly medicines, cars, and high-end food and beverages. In addition, the EU's economic growth rate is less than half of that of the US, and market demand is not strong enough, which means that the "carrot" thrown by the EU may not satisfy the US.

In terms of countermeasures, the EU may push forward the imposition of heavy taxes on American products such as bourbon whiskey, Harley motorcycles and speedboats, almost all of which are owned by Trump supporters. However, when Trump was in power, the EU had always targeted the above-mentioned products for retaliatory tariffs.

At the end of 2023, the European Union reached an agreement with the Biden administration of the United States. In exchange for the United States not imposing tariffs on EU steel and aluminum products for the time being, the EU agreed to postpone the tax plan on the above-mentioned US products to March 2025, after the next US president takes office.

The “tariff war” has different impacts on both sides

Jan Hatzius, chief economist at Goldman Sachs, said that if a transatlantic tariff war breaks out, the EU will suffer more losses than the US. The tariff war will cause the EU's GDP to fall by 1%, while the US will lose 0.5%. However, the impact of the tariff war on the inflation situation of both sides is different. The US inflation rate will increase by 1.1%, while the EU's inflation rate will increase by 0.1%.

Goldman Sachs also pointed out in a research report during the same period that Trump's trade policy would bring uncertainty. Historically, the uncertainty of US trade policy has had a significant impact on the eurozone's economic activities. When Trump was in power, trade policy uncertainty caused the eurozone's industrial output to shrink by about 2%. Major manufacturing and exporting countries such as Germany will be more affected.

The German foreign policy journal International Politics previously published an article saying that the EU should be prepared for the re-emergence of serious tensions in transatlantic trade, and that "the correct response from the EU is to come up with strong policies." The article believes that if Trump wins the election, the EU should send a clear counter-signal before he officially takes office, and also show a willingness to negotiate. If a trade conflict occurs, it will harm the economies on both sides of the Atlantic. Through negotiations, Trump can get a "face-saving" compromise and package it as a "victory" to explain to the American people.

"International Politics" also reminded that if Trump wins the election, he may not hesitate to link the US security guarantees to Europe with trade issues. The EU should still use the strategy of "toughness combined with appeasement" to deal with the US's more aggressive and unilateral approach, but the EU may have to make more concessions at that time.

German News Television reported on the 29th that Hubertus Barth, managing director of the German Institute for Economic Research (IW), mentioned that in the "Trump 1.0" era, the United States has imposed punitive tariffs on steel and aluminum from foreign countries, as well as cheese, wine and butter from EU countries. Barth believes that the EU must develop a clear confrontation strategy in order to be able to deal with such tariff threats.

The report released by the German Economic Institute said that threatening to take countermeasures could be a way to prevent Trump from raising tariffs. But the EU also needs to further promote free trade agreements with countries and regions such as Australia and Indonesia. This is an important way to mitigate the impact of the United States' protectionist trade policies.