EU–US Trade: Tariff War or Negotiated Settlement?

The transatlantic trade relationship entered its most turbulent phase since the 1970s steel disputes when the Trump administration re-imposed 25% tariffs on EU steel and aluminium in early 2025, terminating the arrangement negotiated by the Biden administration. The “Liberation Day” tariff announcement in April 2025 escalated further, applying a 20% baseline tariff to all EU goods — framing the EU’s €158 billion goods trade surplus with the US as evidence of “unfair” trade practices. The US side pointed specifically to EU value-added tax (VAT) systems, product standards, and regulatory barriers as non-tariff measures that disadvantage American exporters. The EU rejects this characterisation, arguing that VAT is a domestic consumption tax applied equally to domestic and foreign goods.

The European Commission’s response was calibrated to apply maximum political pressure in US swing states without triggering full escalation. The €95 billion retaliation list targeted bourbon whiskey (Kentucky/Tennessee), Harley-Davidson motorcycles (Wisconsin), pork products (Iowa), and agricultural machinery from battleground congressional districts. The Commission’s calculation was that these exports have sufficient political salience to incentivise Congressional pressure on the White House to negotiate. At the same time, the EU held back full implementation of the retaliation, offering a “zero-for-zero” tariff elimination proposal on industrial goods — the framework that both sides had discussed but never finalised under the 2019–2020 TTIP/sectoral negotiation round.

The EU also activated, for the first time, its Anti-Coercion Instrument (ACI) — a regulation passed in 2023 specifically to give Brussels tools to respond to economic coercion by third countries. The ACI allows the Commission to impose trade restrictions, procurement exclusions, and investment limitations on a country deemed to be coercing an EU member state or the EU itself. Invoking it against the US is legally and diplomatically unprecedented and signals how seriously Brussels is treating the tariff escalation. WTO dispute filings were launched in parallel, though WTO proceedings take years and the appellate body remains paralysed by US blocking of judicial appointments.