The EU’s Strategic Response to US Tariffs

In May, President Trump proposed increasing tariffs on European automobiles from 15% to 25%. Although he delayed implementing these tariffs and set a deadline of July 4, the European Union (EU) refrained from retaliation. Instead, in June, the EU moved to establish a trade agreement with the United States through its deliberative institutions. While this agreement might not be perfect, it reflects the EU’s reasonable and responsible choice given the provocation.

One challenge for public officials is realizing that they often receive no gratitude for preventing negative outcomes. Voters generally appreciate tangible, positive results, not merely damage control efforts. In the current global trade upheaval, the EU and other countries are engaging in such damage control by choosing restraint in their trade dealings with the U.S.

Many world leaders remain unrecognized for their prudent avoidance of direct retaliation against U.S. tariffs. Despite facing a barrage of unilateral and legally questionable U.S. tariffs, most U.S. trading partners have avoided similar unilateral retaliatory actions. Instead, they have opted to turn away from hostility and focus on maintaining trade relations.

Some nations, concerned about U.S. intimidation, may choose not to retaliate. Although bullying can be effective, the lack of widespread retaliation is due to more than just fear of U.S. economic pressure. Trump’s tariffs represent singular, unilateral moves, diverging from the U.S.’s long-standing commitment to multilateralism, a principle upheld by many as part of the World Trade Organization (WTO).

The WTO encourages members to maintain rule-based global trade systems. This commitment is evident in the EU’s approach. Unlike the U.S. administration, other WTO members recognize that global prosperity increases when trade barriers decrease. Shared prosperity requires collaborative international trade efforts.

Additionally, many countries recognize that Trump’s tariffs violate international trade laws. The WTO promotes non-discrimination, mandating equal treatment for imports regardless of origin. Despite the U.S. abandoning these principles, other members continue to uphold them, relying on international law rather than unilateral decrees.

The principle of non-discrimination has historical roots dating back to the Hanseatic League, underpinning the economic argument for rule-based trade. Countries have other trading options beyond the U.S., which constitutes about 10% of global exports and 13-15% of worldwide trade. Many nations are redirecting their trade, importing needed goods and exporting to alternative markets, thereby avoiding a potentially destructive trade war.

Through these actions, countries benefit more than they would from retaliatory tariffs against the U.S. Even though this shift results in lost trade opportunities for the U.S., it helps foreign nations enhance their prosperity.

James Bacchus is affiliated with the Cato Institute and the University of Central Florida. He has served in Congress and contributed significantly to WTO’s Appellate Body. His latest book focuses on democracy and sustainability.