Trump Announces New Tariffs on EU and Mexico, Threatening Global Trade Order
A wave of new tariffs against the European Union and Mexico, announced by former President Donald Trump on Saturday, is raising concerns about a potential escalation of global trade tensions. The proposed tariffs of 30% on goods from these key U.S. trade partners, set to begin August 1, represent a significant shift in trade policy and a cornerstone of his 2024 campaign, framed as a means to revitalize the U.S. economy.
Mexico Targeted Over Border Security and “Narco-Trafficking”
In a letter addressed to Mexico’s leader, Trump acknowledged the country’s efforts to curb the flow of undocumented migrants and fentanyl into the United States. However, he asserted that these measures are insufficient to prevent North America from becoming a “Narco-Trafficking Playground.” “Mexico has been helping me secure the border, BUT, what Mexico has done, is not enough,” Trump stated in the letter.
EU Faces Tariffs Over Trade Deficit
The tariffs targeting the European Union stem from Trump’s long-held belief that the U.S. trade deficit poses a national security threat. He argued in a letter to the EU that years of discussion have failed to address “long-term, large, and persistent, Trade Deficits” caused by European trade policies. “Our relationship has been, unfortunately, far from Reciprocal,” he wrote.
EU Response and Potential Countermeasures
European Union Commission President Ursula von der Leyen responded with a commitment to “dialogue, stability, and a constructive transatlantic partnership.” However, she also warned that the EU would “take all necessary steps to safeguard EU interests, including the adoption of proportionate countermeasures if required.”
Trump further cautioned that his administration would escalate tariffs if the EU retaliates with its own tariffs on U.S. goods. This reciprocal threat raises the specter of a full-blown trade war.
A Blow to the Global Trade System
Experts suggest these tariffs represent a significant departure from decades of established trade norms. For years, countries adhered to tariff rates negotiated under the Uruguay Round, operating under a “most favored nation” principle that prohibited discriminatory tariffs. With these new levies, Trump is effectively “blowing up the rules governing world trade,” according to one analyst.
Italy has expressed its support for the EU Commission’s efforts to negotiate a resolution, stating that triggering a trade war “would make no sense” given the current geopolitical climate.
USMCA and Canada Also in the Crosshairs
The proposed Mexico tariff could potentially replace existing 25% tariffs on goods not compliant with the U.S.-Mexico-Canada Agreement (USMCA). However, it remains unclear whether USMCA-compliant goods will be exempt, a provision previously extended to Canada. Trump recently sent a letter to Canada threatening a 35% tariff hike.
Tariffs Previously Suspended, Now Revived
Saturday’s announcements represent a broadening of Trump’s tariff threats, now encompassing 24 countries and the 27-member European Union. While higher tariffs had been previously suspended pending negotiations, base rates of 10% remain in effect for many partners, alongside higher rates of 25% on autos and 50% on steel and aluminum.
Despite the escalating rhetoric, the EU’s chief trade negotiator, Maroš Šefčovič, indicated earlier this week that a deal to avert higher tariffs could be reached “even in the coming days.” The EU is the largest trading partner with the U.S., with goods imports totaling $553 billion in 2022.
Questionable Progress in Trade Talks
According to Douglas Holtz-Eakin, a former Congressional Budget Office director, the recent letters suggest a lack of serious trade negotiations over the past three months. He believes nations are now focused on minimizing their exposure to the U.S. economy under Trump. “They’re spending time talking to each other about what the future is going to look like, and we’re left out,” he said. He added that the letters are largely a tactic to garner attention, but ultimately represent “taxes he’s going to levy on his citizens.”
Potential Economic Impact
The potential impact of these tariffs on Europe is substantial. EU-U.S. trade in goods and services reached €1.7 trillion ($2 trillion) in 2024, averaging €4.6 billion per day. Key European exports to the U.S. include pharmaceuticals, automobiles, aircraft, chemicals, medical instruments, and wine and spirits.
While the EU holds a €198 billion trade surplus in goods, the U.S. offsets this with a surplus in services, such as cloud computing and financial services, bringing the overall trade deficit down to €50 billion, representing less than 3% of total U.S.-EU trade.
Prior to Trump’s return to office, the U.S. and EU enjoyed a cooperative trade relationship with low tariff levels – the U.S. averaging 1.47% on European goods and the EU averaging 1.35% on American products. The current situation marks a stark contrast to that previous stability.
This story was reported by The Associated Press, with contributions from Josh Boak, Angela Charlton, Dave McHugh, and Giada Zampano.
