Donald Trump’s ‘Liberation Day’ has delivered the highest tariff hike in nearly a century. If they’re implemented, the average US tariff rate will rise to 22.5%, around 11 percentage points higher compared to March. Trump has given the world just one week to absorb the news and potentially begin negotiations.
European Commission President Ursula von der Leyen was quick to promise a proportionate response while maintaining an openness to dialogue. But the reality is that any retaliation would be far from ideal. It would be driven by the political pressure to show that such aggression won’t be tolerated and not by cold-hard strategy (as it should be).
There are at least three reasons why it would be wise for the EU not to react – at least for now – especially if reacting involves duties or taxes targeting US goods or services.
Reason one – tariffs are Trump’s signature move
Since 2 April, the space for negotiating US tariffs is far narrower than initially assumed. Trump is often characterised as a ‘transactional’ leader, willing to provoke and disrupt but ultimately open to a deal. However, the tone and framing in his ‘Liberation Day’ speech suggest a hardened stance and a limited, if any, appetite for compromise on tariffs.
It’s extremely unlikely that talks with the trade partners threatening retaliation will change Trump’s course. What Trump calls ‘reciprocal tariffs’ have little to do with actual reciprocity. All his targets are countries with trade surpluses vis-à-vis the US. In Trump’s narrative, long-standing bilateral trade deficits are evidence of wrongdoing against America, and they’ve become a national security threat.
In this logic, despite being wrong, EU counter-tariffs or an EU tax on US services that could lead to higher US trade deficits will simply challenge the tariffs’ key objective and certainly trigger escalation – as is already happening in response to China.
This approach aligns with Trump’s own new vision for America, where he openly pitches tariffs as a cornerstone of a new US economic policy. This is a throwback to the 19th century, when tariffs funded the federal budget and protected American industry.
Now he wants that model back. No income tax, lower corporate tax and high tariffs. ‘Tariffs make America rich,’ he said. And if that’s the ideological foundation, there’s zero appetite for removing tariffs. Three more elements confirm this reading.
The first is that Trump often brags that his tariff rates are ‘very kind.’ His formula to determine the tariff rate takes the US bilateral trade deficit, divides it by imports, and then halves it. But this ‘kindness’ gives him rhetorical space to double rates at any time, possibly to teach someone a lesson or to punish retaliation – not to remove them.
Second, Trump has never spelled out what he wants in return that might prompt a rollback, whether these are lower tariffs, non-tariff barriers or regulatory alignment. The crude way tariffs were calculated suggests no real interest in any meaningful give-and-take.
Third, the EU cannot ignore what happened with USMCA. Negotiated during his first term to replace NAFTA, it’s now dismissed as a ‘terrible deal’ that he’s already broken. So, even if there is a deal, its value is unclear. Then there’s a practical hurdle: the Office of the US Trade Representative cannot negotiate simultaneously with the 50+ countries now asking for talks. And that suits Trump just fine.
Put together, all of this leads to one sad conclusion – expending diplomatic energy trying to negotiate will likely be for nothing, traded in for minor, cosmetic concessions at best.
Reason two – US domestic politics are the only tariffs deterrent
There’s a chance the tide may (hopefully) turn. Unlike previous cases, such as the US tariffs against Japan in 1987 under the Reagan administration, which were driven by strong business constituencies in Congress, this time feels fundamentally different.
US tariffs today are a one-man show. Trump, a self-proclaimed believer in protectionism, has engineered the ’reciprocal tariffs’ almost entirely on his own.
While there’s some discomfort in Congress, very few Republican lawmakers have publicly distanced themselves. That may not last. The US stock exchange has plummeted, protests have already erupted across the US, and discontent is likely to rise as the real effects of tariffs begin to hit. Consumer confidence is at a four-year low and likely to continue falling as tariffs, which are fundamentally a tax on domestic consumers, will lead to higher prices. Businesses, especially those reliant on imported components, will also struggle. Today’s global supply chains are simply nothing like those of the 19th century and the US’ capacity to substitute imports with domestic production will take time.
According to BudgetLab estimates, if all tariffs announced on 2 April happen, US inflation could rise by 2.3 percentage points. The average monthly loss in household purchasing power would be around USD 300. Higher inflation could force the Federal Reserve to adopt a tighter monetary policy. Unsurprisingly, Trump has already started pressuring the Fed Chair Jerome Powell to hold off on any rate hikes.
If inflation climbs and public dissatisfaction grows, Trump’s approval ratings may dip, and unease within Congress may grow louder. Internal pressure may be the only factor that could force a reassessment – or at least a softening – of the tariff policy.
Ironically, abstaining from retaliation could strengthen this mechanism, by denying Trump the opportunity to claim further victimhood or justify escalation in response to foreign countermeasures. More importantly, it would avoid compounding already high levels of market volatility and global uncertainty.
Reason three – EU retaliation means self-inflicted pain
There’s no doubt that the US tariffs have triggered frustration and urgency among EU policymakers and businesses. The instinct to retaliate is strong. But tariffs or taxes targeting US goods or services would almost certainly backfire, translating into higher prices for EU consumers without being able to remove US tariffs meaningfully.
And this comes at a particularly delicate moment. The EU is already navigating major geopolitical challenges and the economy is exposed to the potentially depressionary effects of US trade measures. Adding inflation to the mix – through retaliatory tariffs – could push the EU towards a dangerous cocktail of slowing growth and rising prices.
This would then leave the ECB in a bind. On the one hand, the economic slowdown calls for supportive monetary policy; on the other, rising prices would make further rate cuts or easing politically and economically contentious.
Retaliation risks forcing the EU into a stagflation trap at the worst possible time. That’s why the EU’s best course of action may be to not play by Trump’s rules and focus instead on minimising the damage and exploring other areas of negotiations rather than countermeasures. Reacting with tariffs might offer momentary emotional satisfaction, but it would yield little in terms of economic or political benefit and could risk fuelling further escalation.
Restraint could buy time for domestic dynamics in the US to shift and for alternative partnerships, or even alliances, to strengthen. Not reacting isn’t being passive. It’s being strategic and rational.
