The only predictable thing about the U.S. election was that it would be unpredictable. Trump has already made a number of bold claims about his policy plans, including a raft of new sanctions and tariffs against major nations. While the United States’ immediate neighbours seem to be taking the brunt of them, there could be a ripple effect that spans far beyond North America. So what might the impact be on European businesses—and what if anything can be done to mitigate against it?
What Trump is planning
Trump’s planned tariffs have largely been focused on close neighbours Mexico and Canada, which constitute a large proportion of imports to the USA. The new president has threatened to impose a 25% tariff on all goods imported from Canada and Mexico. Although those threats have been put on hold for now, he is due to announce 25% tariffs on all imported aluminium and steel from any country outside the U.S. Trump has also pledged an “additional” 10% tariff to China “on top of any other tariffs”. He cited the fact that Canada makes 20% of U.S. cars, and what he perceives as border security and drug trafficking issues with both nations. He has also pointed to China as a source of fentanyl, part of an ongoing opioid epidemic in America.
None of these seems particularly wise given that Mexico, Canada and China are the United States’ three biggest trading partners, constituting 40% of all imports, and the reaction of the U.S. stock market has driven this fact home. Yet the posturing has been politically expedient for many Republican voters, where there is no love lost for any of the three countries. Mexico has long been a source of criticism for immigration reasons, with Trump famously promising to “build the wall” on the U.S.-Mexico border. Canada meanwhile has long been run by the centre-left Liberal party, with Trump and Prime Minister Justin Trudeau not getting on particularly well during his first term.
Trudeau has just recently resigned, so it remains to be seen how a potential change in government will influence this relationship. However, China has been a repeated target of economic sanctions, and not just by Trump: tariffs have been imposed by the Biden administration, including heavy tariffs on electric vehicles, the development of which is perceived to have been boosted by Chinese state aid. The change of president also comes amidst an ongoing case against TikTok owner ByteDance, and allegations of Chinese espionage against the U.S., all of which is likely to enhance calls for heavy sanctions.
The impact on European businesses
Europe is definitely a less immediate target than the nations mentioned above, but this doesn’t mean they will get away scot-free, as Trump pledged on Sunday to implement tariffs with the EU “pretty soon.” While it wasn’t a major focus during the election campaign, Trump has started to bundle the European Union into his talks about tariffs. During a press conference at Mar-a-Lago, Trump discussed the fact that the U.S. has a “$350 billion trade deficit” with the EU, and accused the bloc of not accepting American cars or farm products, promising that the United States would reciprocate this. He has also claimed that tariffs would be placed on the EU unless the bloc committed to “the large scale purchase of our oil and gas.”
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In both cases, the president’s wishes may clash with the stark reality of demand. Short of any rollback of food standards, there simply doesn’t seem to be a big demand for most American farm products in Europe, while American car manufacturers are competing on a level playing field with both local and international competitors. Oil and gas sales meanwhile come amidst a widespread push for renewable energy, both to meet net zero targets and to reduce the continent’s reliance on gas imports from Russia.
Beyond Trump’s direct promises, however, we’ve already seen how policy shifts could put the U.S. and Europe at loggerheads. The decision by Meta to scale back factchecking is an obvious appeal to the incoming president, and has drawn sharp criticism from multiple European leaders, which could eventually lead to a ban similar to the one the US had proposed against TikTok, and which has now been delayed by Trump. Should this happen, it’s possible reprisals could arrive from the U.S. on foreign tech businesses, something that might not be explicitly targeted at emerging European tech hubs, but could affect them anyway.
What happens next
Does this mean that tariffs on the EU are inevitable, then—and what about the UK? A helpful starting point is to look at Trump’s previous term, where tariffs were imposed on washing machines, solar panels, aluminium and steel produced anywhere outside of the United States. In response, the EU was one of many trading partners to announce reciprocal tariffs on a much wider range of goods, from agricultural goods to cosmetics. The ante was then upped again by the U.S., which put a 25% tariff on many luxury food, drink, and fashion items. This threatened to turn into a trade war, and it took until the Biden presidency for both sides to add exemptions.
So for European businesses, the steel and aluminium tariffs pose the biggest threat and.the impact on American businesses, supply chains, and the stock market will doubtless have some knock-on effects around the world, but it’s also worth noting that a major focus of Trump’s policies and rhetoric around tariffs has been AI, and the chip manufacturers central to AI development. This is not an area that Europe poses a competitive threat in, with the major manufacturing bases all being in Asia.
An unlikely but equally fascinating scenario is one where the UK becomes a bastion of US-European trade. Although Trump has said the UK is “out of line” in terms of trade (although the president declined to go into further detail about exactly what that meant!) it seems he has a slightly softer approach to the UK due to the fact that Brexit meant a break from the EU and a more individual stance which appeals to Trump’s sensibilities. He also gave the UK hope by saying that something “can be worked out” without tariffs which should allow UK Prime Minister Kier Starmer to draw breath before negotiations start. Although the British steel industry is waiting on tenterhooks for any tariffs which may impact the £400m of trade in that industry.
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If tariffs on products and goods are levied against the EU but not against the UK, we could see a partial reversal of some of the effects of Brexit, with businesses relocating to or opening branches in the UK to alleviate some of the financial burden associated with exporting. This could also drive greater concessions from the EU to the UK in order to further facilitate UK-EU trade, leading to new US policy benefitting both sides. Could Starmer then take advantage of the trade war and offer businesses a safe haven to import goods in order to then export to the US?
The current period is a tumultuous one, and it’s always difficult to predict what Donald Trump will do next. The best advice for businesses at the moment is to wait it out, and see what the end result of his posturing is. While the previous trade wars set a worrying precedent, the reality this time around seems to be that the EU isn’t the primary target for American sanctions—and that the UK could find itself in an interesting and possibly beneficial position.
