(CN) — European politics and stock markets were rocked Monday by U.S. President Donald Trump’s weekend threat to impose hefty tariffs on the European Union and the United Kingdom.
Across Europe, stock markets and the euro currency sank as the prospect of a trade war between the United States and the EU grew after Trump’s comments to reporters on Sunday.
“It will definitely happen with the European Union,” Trump said about imposing tariffs on the EU. “I can tell you that because they’ve really taken advantage of us.”
As for the U.K., Trump suggested something “can be worked out” with Prime Minister Keir Starmer to avoid tariffs. Still, British stocks and the pound sterling suffered losses amid global uncertainty following Trump’s dramatic decision over the weekend to impose sweeping tariffs on Canada, Mexico and China.
During his presidential campaign, Trump repeatedly pledged to tax imports, citing the need to bolster American manufacturing and end what he views as unfair trade relations. But world markets were spooked and surprised by Trump’s quick action, which loudly upends global trade relations and undermines free trade.
In his threat against the EU, he cited a more than $300 billion deficit in trade with the 27-nation bloc as the main reason for slapping tariffs on European goods. According to EU data, the trade deficit between the EU and U.S. in 2023 stood at about 155.8 billion euros, or slightly more than $161 billion.
“They don’t take our cars, they don’t take our farm products, they take almost nothing and we take almost everything from them,” Trump said. “The European Union is an atrocity.”
Kaja Kallas, the EU’s top diplomat, warned against starting a trade spat.
“What is clear is that there are no winners in trade wars,” she said to reporters in Brussels, adding that if the U.S. starts a trade war, “the one laughing on the side is China.”
She said neither side can afford it and that workers and consumers on both sides would end up losing. “We are very interlinked. We need America and America needs us as well,” she said.
German Chancellor Olaf Scholz and French President Emmanuel Macron were among European leaders vowing a strong response to U.S. tariffs.
“If our commercial interests are attacked, Europe, as a true power, will have to make itself respected and therefore react,” Macron said, speaking at a meeting Monday in Brussels with other EU leaders to discuss defense and trade issues.
EU leaders are changing their tone as they take the menace of tariffs more seriously and say they are prepared to strike back. For now, it seems certain Trump will hit the EU with tariffs, though how big and how extensive they’ll be remains unclear. A 10% tariff can be expected, experts say.
In his first term, Trump imposed tariffs on European steel and aluminum, but this time, he appears ready to go much further. In retaliation, the EU levied taxes on imports of American blue jeans, whiskey and motorcycles.
The International Monetary Fund has warned a trade war between the U.S. and EU could wipe out as much as 7% of global GDP due to the sheer volume of trade across the Atlantic Ocean.
The threat of tariffs comes at a difficult time for the EU with political instability hobbling Germany and France, its two biggest economies. The bloc also is struggling economically, and it’s weighed down by the war in Ukraine.
“The problem for Europe is mainly about leadership and maintaining this united stance,” said Wolfango Piccoli, a London-based analyst with Teneo, a political risk firm, speaking by telephone.
He said there was a risk some countries might try to make side deals with Trump.
“There could be a temptation here for certain countries to try to get an exemption in terms of tariffs,” he said. “One signpost to monitor is whether we’re going to start seeing European leaders trying to chase their own deal with Trump.”
For instance, Italy might seek to carve out exceptions for its principal exports to the U.S., goods such as olive oil, wines and fashion items, he said.
Piccoli said the EU faces a very difficult year if Trump goes ahead with his tariff threat.
“This year, Europe is supposed to grow, best-case scenario, by around 1%,” he said. “If we assume a 10% tariff by Trump across the board, that could wipe off this 1% growth.”
Trump’s escalating trade war with Beijing poses risks for the EU, too, he added.
“If China is under pressure from the U.S. in terms of tariffs, one of the reactions of China could be to try to boost its exports even more,” he said. “Europe, given the size of the market, could be one of the targets. On one side, you are facing Trump tariffs, and on the other side, you are facing more and more cheap Chinese imports.”
He added that the EU is very good at trade negotiations, and its economic and political clout would give it a lot of weight in talks with the U.S.
“At the end of the day, this is still the biggest bloc in the world,” he said. “From the Trump side, it needs to be managed a bit more carefully because the implication could be significant for both sides at the end of the day.”
He said the EU might be able to get Trump to back down by pledging to buy more liquefied natural gas and military equipment from the U.S.
Courthouse News reporter Cain Burdeau is based in the European Union.