Germany and France Push for a More Aggressive Tariff Response

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(Bloomberg) — France and Germany are pushing for a more robust reaction to US President Donald Trump’s tariff measures, advocating for a forceful retaliation that could strengthen the EU’s negotiating position.

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French President Emmanuel Macron believes the European Union should be ready to respond with options such as targeting US tech and services, according to people familiar with his thinking. While France wants to reach a negotiated solution, the government is also pushing for a tougher response.

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Paris wants to make sure the EU responds with all its instruments to defend EU interests, said one of the people, who spoke on the condition of anonymity. 

Trump, speaking from the White House on Wednesday, announced a 20% tariff on EU imports, which will take effect April 9. He repeated his assertion that the 27 member states “rip us off” and called it “pathetic.” He unveiled different duties for certain countries, including a rate well above 50% for China.  

“Last night’s decision is comparable to the war of aggression against Ukraine,” German Vice Chancellor Robert Habeck told reporters in Berlin Thursday. “The magnitude and determination of the response must be commensurate.”

French government spokeswoman Sophie Primas said on RTL radio that the European Commission, which handles trade matters for the EU, could apply a digital services tax on US companies by the end of April. The US has a services trade surplus with the bloc and such a move would likely exacerbate tensions with the US president. 

Implementing an EU-wide tax would require an agreement between the 27 member states.

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Trump’s so-called reciprocal tariffs are meant to target all the trade barriers US exports face abroad, such as duties, domestic regulations and taxes. Commission President Ursula von der Leyen has previously said the EU “holds a lot of cards,” including retaliatory tariffs and targeting American services and technology companies.

The latest US measures come after Trump announced a 25% import tariff on steel and aluminum as well as on cars and some auto parts. The EU announced a set of countermeasures of up to €26 billion ($28.1 billion) in response to the metals duties, which are expected to enter into force in mid-April. Trump has said he’ll announce other sectoral duties on products including lumber, pharmaceutical goods and semiconductors.

“The EU is the largest single market in the world,” German Chancellor Olaf Scholz said in Berlin Thursday. “We therefore have every opportunity to react in a united and decisive manner and to show that we have our own instruments for action — and they will be used.”

Bloomberg reported earlier that France and other countries have called on the commission to consider deploying the bloc’s anti-coercion instrument — the EU’s most powerful trade tool, designed to strike back against nations that use trade and economic measures coercively. 

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The so-called ACI has never been deployed before and could lead to restrictions on trade and services as well as certain intellectual property rights, foreign direct investment and access to public procurement.

Concern is mounting in the EU since US counterparts haven’t shown interest in a negotiated solution, according to another official. The anti-coercion instrument is on the table of options, but is considered a tool of last resort, given the likely outsize impact it would cause. 

EU trade ministers are due to meet on April 7 to discuss the US measures and the EU’s response. Von der Leyen has promised a firm and proportionate response to the tariffs but has also indicated that the EU would prefer to avoid a confrontation and find a negotiated solution in the coming weeks.

“President Trump’s announcement is a major blow to the world economy,” von der Leyen said in a video address Thursday. “We’re preparing for further countermeasures to protect our interests and businesses if negotiations fail.”

The chair of the European Parliament’s trade committee Bernd Lange said a fresh set of retaliatory proposals is possible in one month, he told Bloomberg TV, following the first set of countermeasures scheduled for mid-April in response to Trump’s already-announced 25% metals tariff. The new measures could emerge following an investigation on the damage wrought by the US reciprocal levies.

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The commission is working on a “term sheet” of possible concessions it could make to the US to help reach a settlement to remove or reduce the duties. The term sheet would set out areas for negotiations on tariffs, mutual investments with the US as well as easing certain regulations and standards, Bloomberg reported earlier.

Trump’s measures are the steepest American tariffs in a century, applying at least a 10% tariff on all exporters to the US, with even higher duties on some 60 nations, to counter large trade imbalances with the US. Habeck, the German vice chancellor, said this could lead the EU to cooperate with like-minded countries. 

“New opportunities for alliances are emerging, and we should seize them with both hands,” Habeck said. “When you talk to Mexico and Canada, you see that they are thinking the same things we are. So forging an alliance with Canada and Mexico is the order of the day.”

The Trump administration has focused its attacks on what it considers to be unfair barriers to American products that the US believes contribute to a transatlantic imbalance favoring Europe. The EU also raised the possibility of additional liquefied natural gas and defense-related purchases. 

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European officials have stressed that even though the EU has a goods trade surplus with the US, the 27-nation bloc imports a lot of American services ranging from ecommerce and social media sites to Internet search engines — all part of the US Big Tech industry that has recently cozied up to Trump and his circle of advisers. EU and US firms have more than €5 trillion ($5.4 trillion) worth of investment in each other’s markets, according to the commission.

“I see that Donald Trump buckles under pressure and corrects his announcements under pressure, but the logical consequence is that he must then feel the pressure,” Habeck said. “This pressure must now be unleashed, from Germany, from Europe, in alliance with the other countries, and then we will see who is stronger in this arm-wrestling match.”

—With assistance from Jorge Valero, William Horobin, Alberto Nardelli and Michael Nienaber.

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