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Is Trump’s tariff threat destroying the US-EU trade relationship?

by July 21, 2025
by July 21, 2025

On July 12, President Trump announced plans to impose 30% tariffs on nearly all European Union exports starting August 1.

Letters sent to leaders across the EU and 22 other nations outlined even steeper tariffs on metals, autos, and copper.

The threat is real.

The EU is now preparing up to €72 billion in countermeasures. Both sides are digging in.

And now it looks like what was once a competitive economic rivalry may now become a historic rupture in the US-EU trade.

Why 30% tariffs could actually happen

The White House says these tariffs are needed to correct what it calls unfair trade imbalances.

In 2024, the EU ran a €197 billion trade surplus with the United States, according to Eurostat.

Source: Reuters

Trump wants that to change. His administration is demanding full market access, fewer EU tariffs, and permanent limits on steel and aluminium exports into the US.

Previous tariff threats under Trump were often rolled back or delayed. But this time is different. The scope is broader.

The plan covers almost all goods. It is already formalised in letters sent directly to European leaders.

And unlike 2018, Trump has prepared blanket tariff levels. That is 30% across the board, 50% on copper, and no exemptions for most sectors.

There are signs he will not back down. Talks in Washington last week ended with no real progress.

US negotiators are now pushing for a universal tariff rate above 10%, with only narrow exemptions for some medicines, aircraft components, and specialised manufacturing tools.

European officials, on the other hand, have called these terms “unworkable.”

The EU estimates that existing US duties already hit about €380 billion ($442 billion), which is about 70% of its exports to the US.

In 2025 alone, the US trade deficit with the EU has doubled, as European exporters rushed to frontload shipments before the deadline.

Source: Bloomberg

The EU response: pressure points and retaliation

The European Commission has drafted its own retaliation package. It includes tariffs on €72 billion worth of US goods, focusing on industries with political weight inside the US.

These include bourbon from Kentucky, soybeans from Louisiana, motorcycles from Wisconsin, and Boeing aircraft.

Ireland, Germany, Belgium, and the Netherlands are expected to feel the most pressure if things escalate.

Ireland is exposed through aircraft leasing, which supports nearly 10,000 planes and accounts for over 1% of Irish GDP.

Source: Euronews

Germany is vulnerable through its automotive and chemical supply chains that stretch across Central and Eastern Europe.

Belgium and the Netherlands are major buyers of US chemicals, plastics, and medical devices.

Even if the EU’s retaliatory tariffs are implemented carefully, supply chains could break.

Airbus and Boeing rely on each other for components. EU carmakers depend on US software, semiconductors, and specialised machinery.

Any disruption would raise costs, delay deliveries, and reduce competitiveness on both sides.

What investors should be paying attention to

The market has barely reacted so far. US equities hit record highs just days before the announcement.

European industrial stocks dipped slightly but have since recovered. Most investors believe Trump might pull back again at the last minute. That may be a mistake.

The Tax Foundation estimates these tariffs will cost US households over $1,600 per year by 2026 and raise $171 billion in new government revenue. That would make them one of the largest effective tax increases in decades.

For now, inflation expectations remain stable, but a broad tariff regime could lift prices by up to 0.8% over time.

The bigger issue is fragmentation. European companies are already discussing how to reduce dependence on US technologies, components, and suppliers through the EU Inc movement.

Several EU governments are openly questioning their security and procurement relationships with Washington. Some have started exploring non-US weapons systems and digital infrastructure.

These reactions may look minor, but over time, they will compound. This isn’t just a short-term hit to earnings. It’s the beginning of a potential decoupling.

The sharpest risks are not in the headlines

The most dangerous outcome isn’t immediate inflation or a correction in equities. It’s the collapse of long-term cooperation between two of the world’s largest economies.

The US and EU together represent almost half of global GDP and around 30% of global trade.

They share thousands of supply chains, from aerospace and pharmaceuticals to automotive and clean energy. Tariffs put all of that at risk.

The EU is considering activating its Anti-Coercion Instrument, a powerful legal tool that could restrict US firms from bidding on public contracts, impose new taxes on tech companies, and limit market access.

This would be a direct indication that the EU sees the US not just as a tough negotiator, but as a coercive actor.

Even if a deal is struck before August 1, the political and commercial damage is done. Trust is eroding.

Governments and businesses are already repositioning. A future trade agreement between the US and EU now seems years away.

The post Is Trump’s tariff threat destroying the US-EU trade relationship? appeared first on Invezz

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