On Friday, US President Donald Trump warned of imposing a 50% tariff on European Union goods due to insufficient progress in ongoing trade talks.
“Their powerful Trade Barriers, VAT taxes, ridiculous Corporate Penalties, Non-Monetary Trade Barriers, Monetary Manipulations, unfair and unjustified lawsuits against American companies and more have led to a Trade Deficit with the U.S. of more than $250,000,000 a year, a number which is totally unacceptable,” he wrote in a Truth Social post.
“Our discussions with them are going nowhere!” Trump wrote. “Therefore, I am recommending a straight 50% Tariff on the European Union, starting on June 1, 2025.”
However, later on Friday, during a signing of an executive order in the Oval Office, Trump intensified his message directed at the EU. “I’m not looking for a deal,” he said. “We’ve set the deal — it’s at 50%.”
He indicated he might extend his June 1 deadline, stating, “If somebody comes in and wants to build a plant here, I can talk to them about a little bit of a delay.”
How did markets react to Trump’s tariff threat?
Following Trump’s statement, all three of the major European stock market indices had significant declines: the benchmark STOXX 600 index lost 1.7%. France’s CAC index dropped 2.2%, while Germany’s DAX lost 2.4%. The FTSE index for London fell 1%. The Dow opened 480 points, or 1.15 per cent, down as US markets fell as well.
After Bessent stated in a Bloomberg TV interview on Friday that he anticipates US trade negotiators to meet face-to-face with Chinese officials once more to resume trade discussions after a brief halt in rising tariff rates, stocks recovered from their lows.
What are Trump’s main grievances with the EU trade?
The president has frequently referred to “non-monetary trade barriers,” and he specifically targets nations or trading blocs that have trade deficits with the United States, as he made clear in his Truth Social post. These happen when the United States buys more goods from a trade partner than that nation buys from the United States.
According to figures from the US Commerce Department, the US and the EU had a $236 billion trade imbalance last year. That exceeds the numbers Trump mentioned. Trump has criticised the EU for having both digital service taxes (DSTs) and value-added taxes (VATs), which are examples of non-monetary trade barriers.
VATs are consumption taxes that are computed so that buyers are responsible for paying all taxes associated with the final goods they buy. For example, a VAT is sent when the EU sells products to the US. In the meanwhile, a VAT will be applied to items exported from the US to the EU.
The gross revenue that internet businesses get from providing services to consumers is subject to DSTs. If a nation imposed a DST, it might tax all of the money made by big internet businesses, even if they are losing money. This can include the money they make from advertising and data sales, as well as the money they get from software, subscriptions, and other online services that customers purchase.
According to research released last year by the nonpartisan Congressional Research Service, DSTs disproportionately damage American businesses, specifically Big Tech companies like Meta, Apple, Google, Amazon, and Microsoft.
