U.S. tariffs on European goods threaten to change the world's largest trade relations – country

The EU expects to find out on Monday whether Donald Trump will impose penalties on the U.S.’s largest trading partner on Monday, an impact on companies and consumers on both sides of the Atlantic.

Trump imposed a 20% import tax on all EU-made products in early April, a series of tariffs targeting countries that have caused trade imbalances in the United States. A few hours after the country's specific duties came into effect, he put it on the calm financial markets at a standard rate of 10%, and provided time for negotiations.

But Trump said he expressed dissatisfaction with the EU's position in trade negotiations, saying he would raise tariffs on European exports to 50%, which could make everything all – from French cheese and Italian leather products to German electronics and Spanish pharmaceutical companies, in the United States, much more expensive in the United States.

The EU Executive Committee deals with trade issues among the group's 27 members, and its leaders hope to reach a deal with the Trump administration. No one in the EU says it is ready to retaliate against tariffs on hundreds of U.S. products, from beef and auto parts to beer and Boeing aircraft.

US EU trade is huge

The EU Executive Committee describes trade between the United States and the EU as “the most important business relationship in the world.”

According to the EU Statistics Office Eurostat, the value of EU goods and services trade is 1.7 trillion euros (USD 2 trillion) in 2024, with an average of 4.6 billion euros per day.

The largest exports of the United States to Europe are crude oil, followed by pharmaceuticals, aircraft, automobiles, and medical and diagnostic equipment.

Europe's largest exports to the United States are medicines, cars, aircraft, chemicals, medical devices, as well as wine and spirits.

The EU sells far better to the US than the vice president

Trump complained about the EU's 198 billion euro trade surplus in goods, which shows that Americans buy more from European businesses than the other way around.

However, U.S. companies have filled some gaps by selling the EU in services such as cloud computing, travel booking, and legal and financial services.

Get national news

For news that affects Canada and around the world, please sign up for breaking news alerts that were sent directly to you at the time.

The U.S. Services surplus lowered the EU's trade deficit to 50 billion euros ($59 billion), accounting for less than 3% of the overall U.S. EU trade.

What is the problem of separating the two sides?

Before Trump returned to his office, the United States and the European Union maintained general cooperation in trade relations and low tariff levels on both sides. The average European goods in the United States is 1.47%, while the average U.S. products in the European Union is 1.35%.

However, the White House has been much worse for its long-standing American allies since February. As Trump's European goods tariff rates fluctuate, the EU is also subject to its government's 50% tariff on steel and aluminum, levied a 25% tax on imported cars and parts.

Trump administration officials have raised many issues they want to solve, including agricultural barriers such as EU health regulations, including bans on chlorinated chicken washes and hormone-treated beef.

Trump also criticized Europe's VAT, which levied at a rate of 17% to 27% at its sales point this year. However, many economists consider VAT as trade neutral because they apply to domestic goods and services as well as imported goods. As governments pass legislation to set taxes, the EU says they are not on the table during trade negotiations.

“The EU and its member states cannot give too much stance on the thorny issues of regulations, consumer standards and taxation,” said Holger Schmieding, chief economist at Berenberg Bank. “They cannot change the way the EU’s huge internal markets are based on U.S. demands, which often stem from a misunderstanding of how the EU works.”

“The consequences of many companies”

Economists and companies say higher tariffs will mean higher prices for imported goods for U.S. consumers. Importers must decide how much additional tax charges to absorb through lower profits and how much tax charges to pass to customers.

Mercedes-Benz dealers in the United States said they will hold the price of the 2025 model until further notice. “The German automaker has a partial tariff shield as it makes 35% of Mercedes-Benz vehicles sold in Tuscaloosa, the United States, sold in Alabama, but the company said it expects prices to rise “significantly” in the coming years.

Simon Hunt, CEO of Italian wine and spirits producer Campari Group, told investment analysts that the prices of certain products may rise or depend on the job of competitor companies. Hunter said the company may decide to keep its price on Skyy Vodka or Aperol appetizers for market share if competitors raise prices.

Trump believes that making foreign companies more difficult to sell in the United States is a way to stimulate a revival of American manufacturing. Many companies have dismissed the idea, or said it would take years to bring positive economic benefits. However, some companies have proven willing to transfer certain production in the United States.

Billionaire CEO Bernaud Arnault said at the company's annual meeting in April that France-based luxury goods group LVMH includes Tiffany & Co. , Luis Vuitton, Christian Dior and Moet & Chandon, may move some production to the United States.

Arnault, who attended Trump's inauguration, has urged Europe to reach an agreement based on reciprocity offers.

“If we end up getting high tariffs…we will be forced to increase our U.S. production to avoid tariffs,” Arnault said. “And if Europe doesn’t negotiate smartly, that will be the consequence of many companies. … If that’s involved, it will be Brussels’ fault.”

“The road may be rock”

Some forecasts suggest that the U.S. economy will be more dangerous if negotiations fail.

If no agreement is reached, the EU will lose 0.3% of its GDP, while U.S. GDP will fall 0.7%, and tariffs will be between 10% and 25% if Trump imports goods from Europe, a study review by Bruegel, a think tank in Brussels.

Given the complexity of some issues, the parties can only reach a framework agreement by Wednesday’s deadline. This will likely leave behind a 10% basic tariff, as well as automotive, steel and aluminum tariffs until the details of the formal trade agreement are phased out.

The most likely outcome of the trade negotiations is that “the United States will agree to take on its most serious “retaliatory” tariff threat,” Schmieding said. “But the road to get there can be tough.”

The U.S. offers exemptions to certain commodities that may make the road to transactions smoothly. The EU could provide regulations that simplify what the White House considers to be a trade barrier.

“While Trump may be able to sell such an outcome for him, the ultimate victims of his protectionism will of course be primarily American consumers,” Schmieding said.