Commentary

The universal 10% tariff is compounded by tailored higher rates for countries with significant trade surpluses with the U.S., calculated using a controversial formula. According to the Trump administration, the so-called “reciprocal tariff” is derived from bilateral trade deficits, factoring in alleged non-tariff barriers, such as environmental regulations, digital governance, and even VAT systems, which the administration mistakenly equates with trade tariffs.[1]

For instance, President Trump claimed that the effective EU tariff on U.S. goods is 39%. Experts have widely debunked that claim. The European Commission says the average tariff rate on U.S. goods coming into the EU is just 1% [2]. The WTO puts it a bit higher, at 4.8% [3]. Still, Trump’s administration argues that various non-tariff barriers – ranging from chemical regulations to digital market rules – are equivalent to trade protectionism.

The economic response to the tariffs has been rapid. Stock exchanges fell, with the Dow Jones Industrial Average and other major European indices suffering their worst losses in months. Analysts are concerned that the tariffs will lead to tit-for-tat measures, upset world supply chains, and, by raising costs for consumers and businesses, put a serious dent in the economic recovery.

The Yale Budget Lab states that the typical household in America will be paying an extra $3,800 a year, which is due solely to the rising import costs [4]. Some scholars, like Jeremy Horpedahl from the Libertarian Cato Institute, argue that this is “one of the biggest tax increases in U.S. history,” which won’t just cost citizens more but also could push the US economy into a recession [5].

The European Union is already preparing its response. From Samarkand, Uzbekistan, European Commission president Ursula von der Leyen strongly condemned the move and vowed retaliation. “There seems to be no order in the disorder. No clear path through the complexity and chaos that is being created,” she said, warning of profound disruption to the global trading system [6].

The EU will reply in steps. It has already set in motion a countermeasure package worth €26 billion that targets U.S. tariffs on steel and aluminium. Further tariffs are being discussed by the Commission and member state ambassadors. Von der Leyen emphasised the indirect threat posed by dumping. As U.S. markets will be shut down, excess goods – especially from China – might flood European markets, jeopardising local industries.

What makes the current situation even more dangerous is that Trump’s administration has confused tariffs with trade balances and has overlooked the complicated reasons for global trade deficits, such as savings rates, currency values, and comparative advantages. By using trade imbalances as a weapon, Trump seems less interested in actually reforming global trade rules and more in overhauling the global trading system so that it works, by any means necessary crook, in America’s favour.

The White House insists that tariffs will trigger a new Golden Age: reviving manufacturing, creating millions of jobs, and generating trillions in federal revenues. Yet economists across the spectrum remain unconvinced. Import tariffs are paid not by foreign exporters but by domestic importers – American businesses and consumers. Higher input costs will either be passed on to the consumers or absorbed by businesses, potentially leading to inflation, layoffs, and reduced investment.

There is, of course, a political dimension to all of this. As in the case of Brexit – a comparison Trump himself invoked – tariff nationalism plays well with voters who feel left behind by globalisation. But the cost of such ideological eagerness may be high. Trump’s tariff offensive is not just a trade policy. It is a signal of America’s departure from the post-World War II consensus that championed free trade, multilateralism, and economic interdependence. The EU, long accustomed to treating Washington as a predictable if sometimes difficult partner, must now confront a more unilateralist and unpredictable United States.

Whether this gamble pays off for Trump and his supporters remains to be seen. If the tariffs succeed in reviving industry and reducing inequality, they may redefine American economic leadership. But if they backfire, the resulting dislocation could deepen divisions at home and strain alliances abroad.

This may mark the moment for Europe to diversify trade partnerships, strengthen the internal market, and play a more proactive role in upholding the multilateral order. As with Brexit, the short-term chaos may be just the beginning of a longer and more significant shift in global politics.

FOOTNOTES

[1] Press Briefing, White House, “Reciprocal Tariff Policy Framework” of April 2025.

[2] Access2Markets Database of the European Commission, 2024.

[3] WTO, “World Tariff Profiles”, 2023.

[4] Yale Lab, “Economic Impact of the 2025 Tariff Regime,” of April 2025.

[5] Horpedahl, J.  Interview with The Wall Street Journal, April 1, 2025.

[6] Ursula von der Leyen, Statement in Samarkand, European Commission Press Release, April 2, 2025.

April 2025