Tariffs Are Coming
But also — Next Commission, Technology Transfers, and the ECB
Hello! Today is Tuesday 26 November, and here is your EU news summary for the week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and LinkedIn.
The Briefing
“The most beautiful word in the dictionary is tariff. It's my favorite word”, President-elect Donald Trump said. The EU and its large trade surplus are in America’s crosshairs.
CONTEXT • While France is trying to find allies to form a blocking minority against Mercosur in the Council of the EU, Europe is about to face an unprecedented tariff shock with the United States.
Transatlantic customs disputes are nothing new: the crossfire over public subsidies to Boeing and its European competitor Airbus began in 2004.
The EU was directly affected by the first Trump administration’s additional tariffs of 25% on steel and 10% on aluminum starting in 2018. The EU responded within three weeks by raising tariffs on several American products such as Harley-Davidson motorcycles (from 6% to 31%).
Tariffs were maintained under Biden’s presidency starting in 2020, coupled with massive subsidies and local content clauses ("Buy American") for the energy transition with the Inflation Reduction Act.
However, the Democratic administration paved the way for a thawing of trade relations with the EU, with the establishment of the Trade & Technology Council (TTC) in 2021 to restore friendly dialogue, and the agreement concluded the same year to temporarily lift tariffs on steel and aluminum.
BALANCE YOUR DEFICIT • The US is the largest export market for EU countries, which recorded a trade surplus of €158 billion with the US in 2023. It will likely reach a record €230 billion surplus in 2024.
Unsurprisingly, Germany has the largest trade surplus, with €85.8 billion in 2023, followed by Italy (€42 billion) and Ireland (€31 billion).
The French trade surplus with the US is more modest, at €235 million. That is thanks to handbags — LVMH accounts for 4% of French exports, a bigger share than the whole agricultural sector.
Zoning in on specific sectors, the European trade surplus for machine tools and motor vehicles stands at €102 billion in 2023, with the gap widening significantly since 2020 (it was previously €55 billion).
The EU is a net importer of energy from the US, with a trade deficit of €69.5 billion, a gap that has widened significantly since 2020 (it was €13.1 billion).
Donald Trump intends to rebalance the US trade deficit by raising tariffs across the board. He has promised to increase tariffs from 10% to 20% on all imports and by 60% on China.
If Chinese exports to the US plummet following Trump’s proposed tariff hikes, the Chinese may well shift the bulk of their exports to the EU market, where tariffs will be lower in comparison.
“There’s a risk of Europe becoming the market of last resort for different kinds of Chinese goods”, Jacob Gunter of German think tank MERICS told Politico.
RETALIATION PLAN • The EU has tools to bring Trump to the negotiating table.
Tariff retaliation. In 2018, the EU quickly responded to American protectionist measures. It raised tariffs on symbolic American products, such as Harley-Davidson motorcycles, Zippo lighters, and Levi’s jeans. The EU can impose tariffs in cases of dumping (Regulation 2016/1036) or foreign subsidies (Regulation 2016/1037).
The Anti-Coercion Instrument (ACI). Adopted at last in 2023, the EU’s anti-coercion tool gives the Union commercial deterrents to discourage economic coercion. It can be used to launch countermeasures against a third country as a last resort.
The Foreign Subsidies Regulation (FSR). Adopted in 2022, the FSR enables the correction of competitive distortions caused by subsidies granted by third countries during public procurement or M&A operations in Europe. The US has not yet been targeted by the FSR.
POLITICS • While the Draghi report brought to attention the stalling of the European economy, the decline in exports to the US and the redirection of Chinese trade surpluses to the European market would significantly harm European industry’s competitiveness.
The first signs of Europe’s reaction to Donald Trump’s election demonstrated a desire for de-escalation, in line with Ursula von der Leyen’s recent promise to buy more American liquefied natural gas (LNG). European leaders are betting on negotiations with the new US President to conclude on preferential agreements for the EU, rather than ending in a trade standoff.
The European response to US policy will ultimately depend on EU unity. The imposition of additional tariffs on Chinese EVs imports in October 2024 already highlighted the tendency of some European governments to follow their own national interests when faced with potential retaliation measures.
In Case You Missed It
WHITE SMOKE • On 20 November, the EPP, the S&D, and Renew agreed to green-light the appointment of the six designated Executive Vice-Presidents of the Commission, ending a stand-off which had begun eight days before.
The last-minute deal paves the way for the election of the full College of Commissioners during the next plenary session of the European Parliament on 27 November. The new Commission will then be able to enter into office on 1 December.
The confirmation process had been frozen for eight long days during which the three largest pro-EU political groupings wrangled over the composition of the new Commission.
In the end, the prospect of mutual destruction led the EPP, the S&D and Renew to sign off on all nominees for the second Von der Leyen Commission, without rejecting a single candidate.
The EPP agreed to approve the nomination of Teresa Ribera (S&D), the Spanish Minister for Ecological Transition, for the post of Executive Vice-President for Clean, Just, and Competitive Transition. During her confirmation hearing, centre-right and far-right MEPs had strongly criticised Ms Ribera for her handling of the recent deadly floods in the Valencia region.
In return, the S&D and Renew lifted their vetoes on Executive-President Fitto and Commissioner Várhelyi. For the Socialists, supporting Mr Fitto is a particularly painful concession, since they view his appointment as an Executive-Vice President as a breach of the cordon sanitaire around far-right political parties.
The S&D and Renew were slightly more successful during the negotiations around Hungarian Commissioner Várhelyi. As part of the final compromise, Mr Várhelyi’s responsibilities for health preparedness and reproductive and sexual rights have been transferred to the Belgian Commissioner-designate Hadja Lahbib.
Despite signing a “Platform Cooperation statement” with the S&D and Renew, the EPP has stated that it reserves the right to cooperate with the Patriots for Europe (PfE) and the European Conservatives and Reformists Group (ECR), in particular to revisit aspects of the Green New Deal.
TECHNOLOGY • The EU would like to condition the granting of European subsidies on technology transfers as part of a call for projects on electric batteries, according to the FT.
Although the specific call for projects is not mentioned in the article, it could likely be the call for projects on batteries from the Innovation Fund (IF24 Battery), which aims to direct €1 billion towards innovative electric battery manufacturing projects.
Chinese battery companies would be required to have European production lines and technology transfer agreements to benefit from these subsidies.
Some economists have pointed out that while these measures resemble Chinese practices for market access, China's technological catch-up is more attributable to its active industrial policy than to mandatory technology transfers.
ECB • The European Central Bank (ECB) published its semi-annual financial stability review.
Despite inflation converging towards the 2% target, the ECB is alarmed by the “elevated debt levels and high budget deficits, coupled with weak long-term growth-potential and policy uncertainty, increase the risk that fiscal slippage will reignite market concerns over sovereign debt sustainability.”
What We’ve Been Reading
The FT’s Henry Foy has lunch with António Costa, the President-elect of the European Council.
Matthias Bauer of the ECIPE criticizes ‘Europe’s Misguided Obsession with Bureaucracy’.
Jean Boghossian reveals his favorite spots in Brussels for dining, drinking, shopping, lodging, and appreciating art in a feature with the FT.
This edition was prepared by Nathan Munch, Luna Ricci, Antoine Ognibene, Edgar Carpentier-Charléty, Maxence de La Rochère, Lucie Ronchewski, Rogier Prins, Hana Rajabally. See you next week!