Retaliation against US tariffs is the EU’s only real option

The European Union must decide how to react to what amounts to the most extensive attack on free trade since the 1930s. President Trump’s 2 April harvest of so-called ‘reciprocal tariffs’ – calculated using a patently absurd methodology – threaten to harm the EU with a standard 20% tariff and drive the global economy into stagflation.

In responding, the EU has three options:

1. Take no retaliatory measures and seek to negotiate tariff reductions and exemptions, perhaps trying through monetary policy to contain the effects of the new duties (as suggested in a March 2025 European Parliament study);

2. Respond with targeted measures, similar to those taken by the European Commission in response to the 25% steel and aluminium duties Trump had already imposed before 2 April, with the aim of hitting production in Republican states and companies connected to the Trump administration

3. Take proportionate retaliatory measures against most US imports, while also activating the EU Anti-Coercion Instrument, which is a framework for escalating the EU response to external economic pressure.

The first option has the advantage of being cheaper economically – if that were an end to it. However, it would likely be read as a sign of surrender, prompting the Trump administration to seek new concessions, not only because victory would be achieved without resistance, but also because new investment in the US to circumvent duties, together with tax cuts, would perpetuate the US trade deficit. The EU would face endless trade wars.

Targeted measures – option 2 – would also be read as a sign of weakness: the EU taking only limited retaliation because it fears trade war. In this case, it would be sufficient for Trump to respond with a strong but limited escalation to make the EU back off. This was what happened to EU tariffs against US bourbon whiskey: the US responded with the threat of 200% duties on the import of European spirits. In any case, targeted measures would not really be a solution: either the EU duties would be withdrawn – in other words, a fall back to the first option, or the EU would move on towards the third option.

Under option 3, retaliation should be proportionate and scalable (upward and downward) and could include services. EU tariffs would have a high immediate cost for everyone. However, they could be introduced in stages to give importers time to find substitutes. Exemptions (for example for certain US medicines, intermediate products and raw materials that cannot be easily replaced) could also be provided for to reduce the costs for businesses and consumers.

As other countries (Canada, partly China) will also adopt a similar approach (and hesitant countries may join in), the impact of proportionate retaliation on the US economy could be significant, especially in a situation in which Biden’s favourable economic legacy has been dissipated in only two months. Shrinking US exports, negative tariffs effects on investor and consumer confidence, and further US stock market slides could even push the US economy into recession. Even if the ‘pain threshold’ of the second Trump administration is higher than that of the first, it is unlikely that this also applies to US businesses and the American voter. Trump’s approval rating for managing the economy has never been so low and he may not want a further sharp deterioration, so he must be pushed into real negotiations.

The claim that a trade war with the US is best avoided is valid. But Trump has already started the war. The real question then is whether Europe should surrender without a fight, hoping for the unlikely benevolence of the victor (and validating its disdain for a weak and divided EU), or whether it should fight back, while remaining open to negotiation, in order to truly seek a solution to the trade war. Bending the knee to the tyrant will most likely encourage the tyrant to ask for more. Therefore, if the aim is to end an economically devastating conflict as quickly as possible, the EU must risk responding in kind to US tariff aggression.