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The entrance to one of the Google buildings in the ‘Silicon Docks’ area in central Dublin, Ireland, on Tuesday, Nov. 29, 2022.
The European Union (EU) has expressed its intention to consider a wide array of responses to potential heavy trade tariffs imposed by the United States, specifically those enacted by former President Donald Trump. The remarks come in light of Trump’s proposed blanket tariffs of 20%, which have already sent shockwaves through the global market.
In advance of the official announcement regarding these tariffs, European Commission President Ursula von der Leyen highlighted the EU’s substantial leverage in negotiations, stating that Europe possesses multiple key advantages across sectors from trade to technology. She underscored that the EU is prepared to implement robust countermeasures if necessary, reiterating that “all instruments are on the table” as they formulate their response.
The EU stands as the largest trading partner for the U.S., engaging in significant exchanges in goods and services that are nearly balanced overall. However, the U.S. administration’s calculation of retaliatory tariffs has been criticized for focusing solely on trade deficits related to goods, creating substantial tariffs for countries perceived as having a deficit, such as Vietnam and Sri Lanka.
For the EU, this has resulted in a proposed tariff of 20%, reflecting a substantial goods deficit with the U.S. worth approximately $235.6 billion. Former President Trump has frequently criticized the trade dynamics with the EU, suggesting that American products face undue barriers while European goods flow freely into the U.S.
According to Holger Schmieding, chief economist at Berenberg, the EU may not impose immediate retaliation but could threaten action if negotiations falter by mid-year. While he anticipates some of the heightened tariffs on EU exports might be negotiated, he notes that the technology sector could be a significant battlefield for any retaliation, potentially impacting major U.S. tech firms.
Possible countermeasures could involve stricter regulatory frameworks for U.S. technology companies operating in Europe, or invoking the bloc’s Anti-Coercion Instrument (ACI) to limit their business activities in various ways, such as by delaying licensing or restricting public contracts. Areas of focus might include app stores, communications technology, and data management practices.
While Europe has not developed substantial domestic tech giants, it remains a critical market for American companies like Apple, Google, Amazon, and Microsoft, many of which have their European headquarters in Dublin, attracted by favorable corporate tax rates.
The EU has already begun efforts to regulate the dominance of major tech players through laws like the Digital Markets Act (DMA), targeting firms labeled as “gatekeepers.” Recently, the European Commission charged Alphabet (Google’s parent company) with violations of this act, and issued guidance to Apple for better compliance. Trump’s administration has previously cited the EU’s regulatory actions as justification for imposing tariffs, framing it as a form of economic coercion against U.S. tech firms.
Amid the tariff chaos, U.S. tech companies are likely facing repercussions for their supply chains and production, particularly those reliant on Asian components and manufacturing. Recently, Apple shares experienced their most significant drop since 2020, highlighting concerns over the broader tech market.
Impact on European Consumers
ING’s Brzeski noted that leveraging measures through the ACI would necessitate approval from a majority of EU member states and could face significant logistical hurdles and delays. He remarked that targeting U.S. digital services would represent the “nuclear option” in EU trade responses, cautioning that it could provoke fierce retaliation from the U.S. and negatively impact European consumers who currently rely heavily on American tech services.
Brzeski pointed out that such actions would mirror the very practices Trump has initiated, as they harm trade relations while ultimately costing consumers in Europe.
Andrew Kenningham, chief Europe economist at Capital Economics, anticipates a more restrained response from EU leaders. He believes that policymakers will likely explore adjustments in taxation or engage the ACI but maintain a measured approach to avoid escalating tensions with the U.S. He emphasized that while there is a quick array of critiques coming from EU officials about the tariffs, there remains a strong interest in continuing dialogue and preserving long-term trade relations.
— CNBC’s Ryan Browne contributed to this story.
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