European companies are trying to prepare for the fallout from President Donald Trump’s tariffs-first approach to trade policy as he finally finds the time to turn his attention to the EU after two quick wins with Canada and Mexico.
Trump has threatened to slap tariffs on all imports from the European Union as a way of fixing what he deems an unfair trade surplus in the EU’s favor. According to European business executives, the impact of such a move could be quite serious, the Financial Times reported last week as investment banks start revising down their economic growth forecasts for the EU.
Per the FT, Germany’s power utility RWE, for instance, worried about its investment plans for the United States, with chief executive Markus Krebber saying it might need to tweak new wind and solar projects for the U.S. because some of the components it planned to use for these projects were not manufactured locally and would need to be imported from Europe.
Other companies, including luxury goods maker LVMH and supermajor Shell were considering an expansion in the United States in response to the tariffs, likely with a view to hedging against the worst of the tariff fallout. “The big question is what happens if those tariffs come in between the US and Europe,” the chief executive of Volvo Cars told the Financial Times, elaborating that anything higher than 10% would force the carmakers to boost its production in the U.S.
None of this sounds like a bad thing for Trump and his effort to encourage more made-in-America action. It does sound like a pretty bad thing for the European Union, at least according to banks forecasting economic growth. Goldman Sachs said the eurozone’s GDP growth could suffer setbacks, resulting in feeble growth of 0.7% this year. This compares with the 1.1% growth forecast by the European Central Bank in December.
It could end up being even worse if the EU retaliates in full, according to the chief European economist of the bank. In such a scenario, which is not at all unlikely, Sven Jari Stehn foresees a full percentage point wiped out of the eurozone’s economic growth, potentially plunging the eurozone into recession.
Meanwhile, the EU is preparing for retaliation—even as it makes early concessions to Trump. The Financial Times again reported that the EU was prepared to offer Washington a lower import tariff for American cars, from 10% currently to a figure closer to the 2.5% that the United States charges on car imports. That would be in addition to the EU agreeing to buy more American liquefied natural gas and military equipment.
Indeed, the EU is already buying all the U.S. LNG it can find and then some. Last month almost 90% of all U.S. exports of liquefied natural gas ended up in Europe, Reuters reported earlier this month, citing data from LSEG. The U.S. total for the month came in at 8.46 million tons, of which 7.25 million tons were shipped to Europe amid typical winter weather and plummeting storage levels due to a lack of pipeline supplies from Russia.
LNG was always going to be a focal point of any trade negotiations and an easy one for the Europeans to “fix”—they already have precious few alternative options, given political animosity towards Russian gas and calls for a ban. However, the EU would need to change its tack if it wants to secure future supply—with long-term commitments.
This is what the chief executive of TotalEnergies said last week in comments on EU-U.S. trade and the outlook for the bloc’s energy security. Citing the unpredictability of the global trade environment, Patrick Pouyanne urged the EU to secure supply guarantees from the U.S., pointing out, “But what happens if all of a sudden the U.S. decides they must export less than they’ve done historically? … We must not pass from a so-called over-dependence on Russia to an over-dependence on another country, even if it’s an ally,” as quoted by Reuters.
A long-term import commitment for U.S. LNG would please Trump, no doubt, but it would be problematic for EU leaders to admit they need such a commitment for the energy security of the bloc—because of all the talk about gas being easy to give up in favor of wind and solar. The last couple of months have proven empirically this is not the case, but it would still be difficult for the political class of the EU to acknowledge that as it prepares to hit Big Tech with trade restrictions in response to Trump’s tariff plans.
While the EU mulls its response to the tariff threat, Trump just went and slapped 25% tariffs on all steel and aluminum imports, including from Mexico and Canada—and from the European Union. The EU would need to think faster on its feet and maybe forego retaliation for the time being—Trump has proven he can escalate quickly and sharply.
