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Lekshmi MK & Swati Sood
20 July 2025 |
The following note was earlier published in The World This Week #319 & 320 Vol 7, No 28 & 29, 20 July 2025
US-EU Tariff tensions:
From dialogue to a deadlock
Lekshmi MK and Swati Sood
What happened?
On 12 July, President Donald Trump announced a 30 per cent tariff on most EU imports, applicable from 01 August.
On 14 July, in response, EU leaders called the move “absolutely unacceptable” and pledged EUR 72 billion in counter-tariffs.
On 15 July, the EU postponed retaliation to allow talks.
On 16 July, EU trade chief Maros Sefcovic visited Washington.
On 17 July, Trump hinted that a deal was “possible.”
On 18 July, President Trump threatened to impose tariffs of 15-20 per cent on all goods imported from the EU.
What is the background?
First, a brief note on President Trump’s reciprocal tariffs and the US-EU tariff negotiations. On 02 April 2025, President Trump launched Reciprocal Tariffs by invoking the International Emergency Economic Powers Act (IEEPA) to impose a universal 10 per cent tariff on all imports. This added surcharges of up to 20 per cent on the EU. In response, the EU introduced 25 per cent counter-tariffs worth EUR 21 billion on targeted US products. Later, the EU proposed expansion of tariffs to EUR 95 billion if no deal was reached. Both sides agreed to a 90-day pause with baseline US tariffs at 10 per cent, but further negotiations stalled.
Second, a brief note on US-EU trade relations. The European Union and the United States have the world's largest bilateral trade and investment relationship. The US-EU trade in goods and services reached EUR 1.6 trillion in 2023. The European Union is a source of critical supplies to the United States, including medicinal ingredients and pharmaceutical products. The EU exported EUR 503 billion goods to the US market, while importing goods worth EUR 347 billion. This resulted in a goods trade surplus of EUR 157 billion for the EU. At the same time, the European Union is the largest buyer of the US natural gas and oil.
Third, an internal divide within the EU over its response to Trump’s tariffs. The European Union experienced internal differences among its member states over how to respond to the tariff measures announced by President Trump. While the European Commission coordinated discussions on countermeasures, national governments remained divided in terms of their support. Countries with higher export volumes to the US, such as Germany, urge a swift resolution. Others adopt a more cautious approach. The lack of immediate consensus delays a unified EU response to Trump’s tariffs.
Fourth, other US-EU differences. Both are increasingly competing to attract green technology investments through large-scale subsidy programs. The US Inflation Reduction Act (IRA), with over USD 369 billion in clean energy incentives, offers generous tax credits to companies producing batteries, EVs, and renewable components within the US. In response, the EU launched its Green Deal Industrial Plan and the Net-Zero Industry Act. Also, the EU and several constituent countries, including France, Italy, and Spain, have targeted major US tech firms like Google, Amazon, Facebook, and Apple mainly through the EU Digital Markets Act (DMA), EU Digital Services Act (DSA), and national digital service taxes. The taxes were levied amid growing concerns that such firms were paying minimal taxes despite large profits in European markets. The United States viewed these national laws as unfair trade practices, which escalated tensions between the two sides.
What does it mean?
First, weaponisation of tariffs formulated into mistrust between US and the EU. The US kept using tariffs to protect its own economy, but this made Europe feel pressured. Instead of open talks, it felt more like a power move. Without clear plans, both sides couldn’t settle on common ground.
Second, deepening divides within the EU bloc. The lack of unity among EU member states weakens the bloc’s ability to respond decisively to external pressures like US tariffs. As a result, despite EU leaders’ willingness to negotiate, their fragmented stance limits progress toward a comprehensive trade deal with the US.
Third, green & digital policy clashes. The EU is committed to strict climate goals and digital regulations, which often conflict with US economic and corporate interests. Trump’s administration is more tilted more towards deregulation less towards EUs green priorities. These differences limit scope for deeper cooperation or compromise.
About the AuthorsLekshmi MK is a postgraduate student at the Department of Political Science, Madras Christian College. Swati Sood is an undergraduate student in Political Science at the University of Delhi.
