Economic policy: Warnings from the EU after Trump’s announcement of higher tariffs

US President-elect Donald Trump has increased concerns in Berlin and the EU with his announcement of high tariffs on goods from Mexico, Canada and China.

The outgoing EU foreign policy chief Josep Borrell warned of a trade war and at the same time emphasized the Europeans’ preparedness to defend themselves: “We are ready to take countermeasures,” he threatened on the sidelines of a foreign ministers’ meeting of seven leading industrial nations (G7) in Fiuggi, Italy.

Federal Economics Minister Robert Habeck warned: In the end, everyone would lose, including the USA. The EU must react as one, “not split up into two or three country blocs, but speak together as Europe,” he warned at an industrial conference in Berlin.

German industry is also worried. “In principle, we can wait until the EU and Germany appear on the list. That would do us massive damage,” said the President of the Federation of German Industries, Siegfried Russwurm. The competitive pressure on Germany and Europe would then be increased.

Trump’s orders on day one

Trump wants to impose high import tariffs on all goods from Mexico and Canada as well as additional tariffs on goods from China on his first day in office. This will be one of his first orders on January 20th, Trump said on the platform he co-founded, Truth Social. Tariffs are a type of surcharge on imported goods. They are due at the border.

Tariffs of 25 percent will apply to goods from Mexico and Canada. The US President-elect justified this with immigrants who bring crime and drugs into the US across these two borders. Until that stops, the tariffs should remain in effect. Both Canada and Mexico have the power to solve the problem. “We are calling on them to use their power,” said Trump.

Additional tariffs of 10 percent will apply to goods from China. Trump also justified this by saying that drugs such as the deadly fentanyl were coming from the country into the USA. Although China announced that it would take action against it, it did not do so. The current US President Joe Biden met China’s head of state Xi Jinping on the sidelines of the Asia-Pacific Economic Community (APEC) summit in the Peruvian capital Lima just over a week ago. Xi had assured Biden there that he also wanted to work with the future US government under Trump.

A spokesman for the Chinese embassy in Washington warned of a trade conflict. “No one will win a trade war or a tariff war,” wrote Liu Pengyu on the X platform. The economic and trade cooperation between China and the US is mutually beneficial. There has also been progress in both countries’ fight against the drug fentanyl.

In a statement shared on X, the Canadian government emphasized the close ties between the two economies. It is a “balanced and mutually beneficial relationship.” Canada buys more goods from the USA than from China, Japan, France and Great Britain combined. In addition, around 60 percent of US oil imports came from Canada. The New York Times reported that Canadian Prime Minister Justin Trudeau spoke to Trump immediately after his announcement.

Trump’s election promises

Trump had already announced far-reaching tariffs during the election campaign. He argues that US companies would then produce more in the USA again and jobs would be created. It is the classic “America First” policy that the Republican pursued during his first term in office.

The Democratic US President Biden has also relied on protectionism. He not only largely retained Trump’s China tariffs, but also imposed new tariffs – for example on electric cars. While Biden focused relatively specifically on specific industries, the tariffs announced by Trump are more far-reaching.

Consequences for inflation

Many experts fear that this isolation policy will lead to higher prices because many goods from abroad cannot be produced in the USA overnight. Companies are therefore still dependent on imports from abroad for production – import duties then increase costs. Companies are expected to pass these costs on to consumers. In addition, affected countries are likely to respond with counter tariffs – which in turn is bad for exporting US companies.

Trade conflicts from Trump’s first term

Washington and Beijing have been embroiled in a trade conflict for years. The US also imposed economic sanctions and export restrictions to make it harder for Beijing to access US technology and restricted US investment in China.

Trump also imposed tariffs on certain products from Mexico and Canada, such as steel and aluminum, during his first term in office. He repeatedly led disputes with both countries and set conditions to avert punitive tariffs.