Trump’s self-defeating trade war with Europe – opinion

US President Donald Trump underscored this week that he intends to impose 25% tariffs on EU imports, reinforcing his claim that the bloc enjoys unfair advantages in transatlantic trade. Trump even went on to say the EU was created “to screw the United States”.

Trump may be correct that the EU could indeed “screw” the US; if he follows through on his grave judgment error. While the EU has more to lose in the trade of goods, the US has even more at stake in services, particularly as large US tech firms profit far more from the EU than carmakers in the bloc gain from the US.

Big tech means US has positive trade balance with EU

When goods and services with the EU are combined, the US actually runs a surplus. This is not always obvious in trade statistics, as service exports from tech firms are often excluded due to their accounting practices. It is also difficult to see the big picture, as big tech firms are not always transparent regarding their EU earnings. However, data analyses suggest the EU accounts for a massive 30–40% of big tech’s revenue and profits.

The tech industry has been the main driver of US economic success, as its productivity advantage over the EU largely stems from this sector. Because these firms dominate their markets, from social media to numerous financial services sectors, they would make easy targets in a retaliatory trade war.

It is difficult to believe that Trump does not recognise the risk of his decision, especially as EU officials have, quietly but clearly, already signalled they will retaliate against US service exports if the US further targets EU carmakers.

Trade war could see closer CEE-China links

Central and Eastern European (CEE) countries would be particularly exposed to the fallout from a trade war with the US, as they play host to many German car production hubs. Any disruption to transatlantic trade could hit CEE hardest.

At the same time, CEE countries, and Hungary in particular, are deeply tied to the growing industrial cooperation between Germany and China, positioning the region to benefit from further strengthening cooperation.

It is equally clear that deteriorating relations with the US would push the EU even closer to China, which is already the largest trading partner of Germany, the bloc’s biggest economy. 

The key question is whether the EU will have strong enough leadership to leverage this position. After chancellor-in-waiting Friedrich Merz’s win in the German election last weekend, that possibility seems more likely, making Trump’s move towards a trade war with the EU even more irrational and self-defeating.