Transatlantic trade accounts for one-third of global trade in goods and services and nearly one-third of global GDP in purchasing power, more than a trillion dollars of exchange annually. Yet it is in danger: Brussels and Washington are bracing for tempestuous times, no matter who wins the US presidential election.

Former President Donald Trump vows to impose 10% minimum tariffs across the board, sparking a bloody trade war. He has described the EU as one of the US’s “biggest foes.” European officials estimate the move could reduce EU exports by €150 billion annually.

“This new flavor of American trade and economic policy is marked primarily by a robust new industrial policy as well as a widening trade confrontation with China,” worries Bertram Kawlath, the president of the German Machinery Association and managing partner of Schubert & Salzer GmbH, specializing in industrial control valves. “America does not want a rules-based trading system anymore, and we Europeans must learn to live with that.”

If Democratic candidate Kamala Harris wins, the prognosis will be less dark but still problematic. As Vice President, Harris served in an administration that handed out $430 billion in tax cuts, loans, and grants to promote domestic clean energy production, particularly electric vehicles, to US industry in the Inflation Reduction Act. US carmakers benefited at the expense of their European competitors. The Biden Administration also kept duties on European steel and aluminum.

“In either administration, we expect that trade policy will be driven by a focus on competition with China and greater use of industrial policy to boost domestic production, meaning some way of continued or potentially expanding tariffs,” says Tiffany Smith, VP for Global Trade Policy at the Washington-based National Foreign Trade Council. “The lessons learned from the IRA is that trade controversy is not exclusive to any party.”

Europeans are gearing up for a fight. During Trump’s first term, they emphasized dealmaking. Former European Commission President Jean-Claude Juncker defused threats of giant tariffs on US goods by agreeing during a 2018 White House visit to buy increased quantities of US soybeans and facilitate imports of US natural gas.

This time, Europeans vow to be tough. The European Commission’s trade department is drawing up a potential retaliatory list of US imports it could hit with duties of 50% or more.

The prospect of a Trump victory, followed by punitive US tariffs on European goods, is already hurting the share prices of export-sensitive companies such as UK drinks dynamo Diageo, French luxury leader LVMH, and German car giant Volkswagen.

Whoever wins the presidency, the transatlantic allies will continue to confront old unresolved disputes, particularly over climate change. A Trump victory followed by a US decision to pull out of the Paris climate accords would lead to a Climate Cold War.

A Harris victory, however, would not produce a thaw. In negotiations over steel and aluminum, Europeans insist that the US adopt a European-style carbon trading system, a political no-go in Washington. Hopes of a transatlantic Green Tech trade deal have crashed.

Another unresolved flashpoint concerns China. Under either Trump or Harris, the US looks set to confront Beijing and reduce Chinese imports. The EU is more cautious, with its 27 members divided. If the US applies more tariffs in China, a larger volume of Chinese exports risk being dumped in Europe.

The EU is “likely to face, at best, a continuation of the status quo with both pressure from Washington and rising trade tension with Beijing,” write Aslak Berg and Zach Meyers of the Centre for European Reform think-tank. At worst, the
“EU may face significant new tariffs on its exports to the US – while at the same time being pulled by the US into a trade and technology war with China.”

Under such pressure, European policymakers are considering pivoting toward third countries. Arancha González Laya, a former Spanish foreign minister and EU trade official, urges the bloc to finalize deals in Latin America “where two low-hanging fruits are available EU-Mexico agreement and the EU-Mercosur partnership.” Another target is a new Comprehensive and Progressive Agreement for Trans-Pacific Partnership including Japan, Australia, and Singapore which represents another 13% of global GDP.

Europeans can take these initiatives by themselves. They also want to retain what González Laya describes as “its leading role in the World Trade Organization.”

It sounds like a nice plan. The EU survived the first Trump presidency and some of its leaders argue that a second could force Europe to take politically difficult but strong measures.

But Washington is pulling away from the WTO and global trade rules. Deals with Latin America and the Pacific will not compensate for the damage done by a transatlantic trade war. Europe must brace itself for turbulence – whoever wins the US election.

Bill Echikson is a non-resident Senior Fellow at the Center for European Policy Analysis and editor of the Bandwidth blog.

Joseph Hazzouri is an intern with CEPA’s Digital Innovation Initiative.

Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.

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