The European Union’s (EU’s) Retaliation Plan towards the United States (U.S.)

Executive Summary

 

EU’s Strategic Priorities amid Transatlantic Trade and Security Tensions

• The EU’s key priority is to manage the eroding transatlantic relationship while preserving its security interests — particularly in response to the ongoing threat from Russia.
• At the same time, the EU must guard against becoming a dumping ground for Chinese goods, as the new U.S. tariffs risk diverting excess supply on the single market.
• These challenges unfold as the EU seeks to respond to growing frustration from businesses over regulatory complexity by pursuing a simplification/ deregulation agenda.

 

Defending European Economic Interests Against U.S. Tariffs 

• In response to Trump’s evolving tariff agenda, the EU is pursuing a two-pronged approach: maintaining open channels for negotiation while preparing a range of short- and long-term retaliatory measures should talks break down.
• As in 2018, when EU Member States unanimously backed countermeasures to the first Trump-era tariffs, most of them have reaffirmed commitment for a united response — 26 out of 27, except for Hungary, voted for the first – currently suspended – retaliatory measures.
• Several overtures have already been made to President Trump, namely a proposal for zero tariffs on industrial goods and a commitment to purchase U.S. gas – so far without success.
• While retaliatory tariffs are the most readily deployable tool, the EU is shaping a long-term retaliation plan. To date, this plan appears to favor a gradual accumulation of measures to:
  • Apply strategic pressure on the U.S and its businesses through trade defense instruments (e.g. the Anti-Coercion Instrument), new financial levers such as “digital tax” or enforcement actions against U.S. tech players; 
  • Reduce dependencies on the U.S., by advancing a “European preference” in upcoming reforms, while diversifying trade partnerships (e.g. Mercosur, ASEAN countries).

 

EU’s Concurrent Priorities 

• Growing risks related to China: In light of concerns over potential Chinese dumping into the single market, political engagement takes place at the highest level. In parallel, a Commission internal taskforce is monitoring trade flows to prepare safeguard measures, if needed. At the same time, the EU does not exclude the possibility of finding targeted areas for cooperation.
• Weaknesses in EU’s defense: A potential U.S. withdrawal of support for Ukraine presents an existential risk to the EU. Contingency planning is underway within a “coalition of the willing”, co-led by France and the UK, that could bypass potential vetoes by some EU Member States (e.g., Hungary or Slovakia). An EU defense package expected in June is expected to address increasing defense spending– an aspect on which all Member States agree.

 

1. EU’s Strategic Priorities amid Transatlantic Trade and Security Tensions

 

The European Union and the United States continue to uphold the world’s largest bilateral trade and investment relationship, with total trade in goods and services reaching €1.6 trillion in 2023. While the overall balance remains relatively stable—the EU holds a surplus in goods, while the U.S. leads in services— tensions are rising. 

A key flashpoint concerns the trade imbalance in the automotive sector, concerning particularly Germany. In 2023, the US imported €36 billion worth of motor vehicles from the EU, while exporting only €9.7 billion in return. 

Against this backdrop, the EU faces several strategic challenges:

• Managing a deteriorating transatlantic relationship, closely tied to broader geopolitical dynamics, including the outcome of U.S.-Russia negotiations over the war in Ukraine.
• Shielding the single market from trade diversion, as sweeping U.S. tariffs on goods from other regions—especially China—risk redirecting excess supply toward Europe, raising concerns of the EU becoming a “dumping ground” for redirected exports.
• Addressing internal economic pressures, notably the growing frustration among European businesses over regulatory complexity. In response, the European Commission is advancing a simplification and deregulation agenda aimed at restoring competitiveness and investment confidence.

 

2. Status of the Trade Measures Triggered by Trump’s Tariff Hikes

 

2.1. U.S. Side

 

The White House is rolling out a series of aggressive tariff measures—without seeking to negotiate with trade partners beforehand—seemingly aimed at reshoring U.S. industries and reinforcing domestic production: 

  a) U.S. tariffs of 25% on steel, aluminum and derivative products from the EU (and other regions) entered into force on March 12th, as per Presidential proclamations 10895 and 10896;

  b) Other 25% tariffs on cars and car parts entered into effect on April 3rd (and no later than May 3rd for car parts), as per another proclamation;

  c) A global 10% tariff on most imports, with some exceptions like pharmaceuticals, semiconductors, copper, lumber, energy products, and minerals not found in the U.S., took effect on April 5th. The list of exemptions has been modified  to include smartphones and computers on April 11th;

  d) Higher tariffs were to be added based on where products came from – EU products facing another 10%, Chinese products 24% (as a starter), and Swiss products 21% – starting April 9th. In less than 24 hours, this batch of tariffs – except for China – has been suspended for 90 days.

 

2.2. EU Side

 

Failing to negotiate a deal, the EU could impose countermeasures of €22 billion worth of U.S exports. With the Trump Administration’s stance in flux, EU leaders appear willing to let the U.S. face the economic consequences first before escalating further. Their possible response includes:  

   a) Tariffs adopted on April 9 (initially set to take effect in two phases—April 15 and May 16) have been temporarily paused. These include: 

• Reinstating €8 billion worth of tariffs first imposed during Trump’s initial term (on items like alcoholic beverages, steel, aluminum, and motorcycles);
• Adding €14 billion in new tariffs on industrial and agricultural products.

These measures reinstate most of the tariffs adopted during the first Trump-era trade war, which had been suspended during the Biden Administration (March 2021–March 31, 2025). Originally, they targeted U.S. manufacturers in Republican constituencies, aiming to provoke domestic political pressure for de-escalation. 

  b) Other retaliatory measures may come by later, as part of a broader, phased response. 

As long as the U.S. suspension of certain tariffs remains in place, the EU is unlikely to proceed with further tariff increases.

 

3. Are Channels Open for Negotiation?

 

To date, it does not seem the case. While some key EU leaders—such as Italian Prime Minister Giorgia Meloni (far-right) and the Finnish Prime Minister (center right)—have supported diplomatic re-engagement, others have taken a firmer stance. Long-standing U.S. allies like Polish Prime Minister Donald Tusk (Christian democrat) or Danish Foreign Minister Lars Løkke Rasmussen (liberal and social-democrat coalition) have called for the EU to prepare reciprocal measures swiftly, supported by French President Emmanuel Macron (center right and right) and the future German Chancellor, Friedrich Merz (conservative).

But attempts to negotiate with the U.S. have been unsuccessful so far. Talks are being led by European Commission President Ursula von der Leyen and Commissioner for Trade and Economic Security Maroš Šefčovič, with support from the Directorate-General for Trade (DG TRADE). EU decisions on trade measures require approval by a qualified majority of Member States — 15 countries representing at least 65% of the EU population.

 

Several overtures have already been made to President Trump:

• “Zero-for-zero tariffs”: In early February, the European Commission proposed eliminating tariffs on industrial goods, an offer dismissed by President Trump, who instead urged the EU to purchase energy products worth €350 billion to address the trade deficit. 
• Buying U.S. gas: In the wake of Trump’s reelection, Commission President von der Leyen floated a rather symbolic gesture of increasing EU imports of U.S. liquefied natural gas (LNG). In practice, the EU’s capacity to increase LNG imports is marginal: Germany already sources 90% of its LNG from the U.S., many Member States are reluctant to enter long-term fossil fuel agreements, and unused terminal capacity reflects a 13% drop in gas demand since 2022.

 

Despite these setbacks, the European Commission continues to explore diplomatic avenues to avoid a renewed cycle of retaliatory tariffs, likely by proposing to increase energy imports as a bargaining tool. 

 

4. A Long-Term EU Retaliation Plan in the Making

 

While tariff countermeasures remain the EU’s most immediate and operational tool, the EU reflects on a long-term retaliation plan that would limit risks caused by the unpredictability of what was once a reliable ally. 

This effort is made more complex by the need for continuous coordination among Member States, each with its own political priorities and sensitivities. Nonetheless, there is broad consensus on the need to maintain a united front in the face of U.S. trade pressure, as 26 out of the 27 Member States, except for Hungary, voted for the first – currently suspended – retaliatory tariffs.

Rather than immediate retaliation, the EU appears to favor a gradual accumulation of measures aimed at:

• Applying strategic pressure on the U.S and its businesses, by betting on the negative consequences of the current policy in the medium term;
• Reducing its dependencies on the U.S. throughout a combination of strategies.

 

4.1. Putting Pressure on the U.S. while Promoting European Preference

 

EU leaders are weighing the possibility to mobilize trade defense instruments to exert long-term pressure on the U.S., in particular:

• Anti-Coercion Instrument (ACI): Adopted in November 2023 but not yet enforced, the ACI is designed to respond when a third country seeks to use economic coercion to pressure the EU or a Member State into changing a policy decision. ACI procedure of enforcement1 may take up to a year, as it requires running an assessment of the situation by the Commission. However, it offers a broad set of retaliatory options.

 

Other trade defense instruments — primarily designed to address structural imbalances with other countries like China — could now serve as a blueprint for future actions in the ongoing dispute with the United States: 

• Regulation on Foreign Subsidies: In force since July 2023, it provides new powers to the Commission to weigh the positive and negative effects of a foreign subsidy and impose remedies or block the transaction or procurement altogether;
• Anti-Dumping Regulation: In force since July 2016, enables the Commission to investigate and counter unfair pricing practices when products are sold below their normal value. 

 

As the EU moves toward a more assertive trade policy grounded in “economic security” and industrial resilience to reduce dependence on global supply chain, several measures addressing U.S. players are under discussion: 

• Targeted enforcement of tech regulation: Key EU policymakers across the political spectrum and representing different Member States in Brussels have been urging the Commission to enforce the Digital Service Act (DSA) and the Digital Markets Act (DMA) by imposing strong fines for non-compliance —particularly for digital companies seen as aligned with Trump. On one hand, Commission officials have explained that it will enforce these laws as a regulator, though not with an aggressive focus on financial penalties. On the other hand, media reports indicate that the social network X could be hit with a very high penalty under the DSA.
• “Digital tax” penalizing U.S. businesses: Calls for a tax—largely targeting U.S. tech firms—have regained momentum among top EU officials, including the Commission President, the French government, and several political groups in the European Parliament. However, European businesses and some Member States are warning of a boomerang effect.
• “Buy European Act”: Some policymakers have revived proposals for a “buy European” mechanism, recalling that the European Commission has to review the 2014 Procurement Directive so as to support a European preference reducing exposure to foreign suppliers—particularly those from the U.S.

 

4.2. Diversifying EU’s External Partnerships

 

A third pillar of the EU’s response —also emphasized by President of the European Council António Costa (Socialist, Portugal)—focuses on diversifying EU’s commercial alliances with global partners to reduce strategic dependencies on the United States. These processes, already underway before the current tensions, are taking a growing priority, notably: 

• Accelerating the implementation of the trade agreements with the Mercosur countries (political agreement reached in December 2024), as well as fully operationalizing agreement with Singapore and Vietnam; 
• Accelerating discussions for an EU-India Free Trade Agreement, with talks revived in 2022, that Ursula Von der Leyen hopes to have concluded by the end of 2025. The Commission intends to propose a new EU-India Strategic Agenda and hold an EU-India Summit. Contention points still remain, especially regarding EU safeguard measures on certain steel products; 
• Turning an existing partnership with Indonesia into a free trade agreement, while also resuming talks with Thailand and the Philippines.
• Deepening the EU–Japan Economic Partnership Agreement and the EU–South Korea Free Trade Agreement, particularly in the area of critical technologies.

 

5. EU’s Concurrent Priorities

 

As trade tensions with the U.S. escalate, the EU is focused on two spill over effects: growing risks related to China and the weaknesses in EU’s defense capabilities.

 

5.1. Responding to Threats in EU’s Security 

 

Trust in the U.S. is eroding among the closest friends: European leaders in Poland and the Baltic states have expressed doubts on whether Article 5 of the NATO Treaty would be invoked in the event of a Russian invasion.

Due to the requirement for unanimity on defense and security matters, and to circumvent possible blockades by certain EU Member States (e.g., Hungary or Slovakia), several EU countries joined a “coalition of the willing” co-led by France and the United Kingdom to address consequences of a potential U.S. disengagement from Ukraine. Although still informal, this coalition includes more than 30 countries, including many EU member states, NATO allies, and strategic partners such as Canada. 

At the institutional level, EU Member States agree on the need to increase overall spending in defense. Current options include:

• Triggering the national escape clause under the Stability and Growth Pact as an immediate measure to allow for increased defense spending without breaching EU’s fiscal rules;
• Finding new sources of funding, including mobilizing private financing to support the European defense industry;
• Addressing the “European preference” in defense procurement, amid U.S. pressure to purchase U.S.-made military equipment.

 

5.2. Recalibrating the EU – China Relationship

 

In light of concerns over potential Chinese dumping into the single market—especially as a side effect of rising U.S.–China tensions—the EU is reassessing its approach to Beijing with caution. 

Political engagement takes place at the highest levels, including recent discussions between Chinese Premier Li Qiang and Commission President Ursula von der Leyen, reflecting both sides’ interest in managing friction. 

In parallel, the European Commission has established an internal taskforce to monitor trade flows and prepare safeguard measures if import surges threaten European players on the single market.  

At the same time, the EU is reportedly exploring areas of targeted cooperation with China—particularly in strategic sectors such as green technologies and critical raw materials—where mutual interest may allow for calibrated engagement.

 

Pursuant to a White Paper on European Defense – Readiness 2030 presented by the Commission on March 19th, a defense package to address these aspects is now expected in June 2025.

 

Anca Caruntu and Mayeul Bonsens