British Prime Minister Keir Starmer, right, and German Chancellor Olaf Scholz attend a bilateral meeting in Britain, on Feb. 2.BEN STANSALL/Reuters
Britain and the European Union are bracing for U.S. President Donald Trump to impose sweeping tariffs on U.S. imports from Europe as he threatens to expand his trade war beyond North America and Asia.
After announcing 25-per-cent tariffs on imports from Canada and Mexico - before pausing both measures for 30 days Monday afternoon - Mr. Trump signalled that Europe is next.
Tariffs “will definitely happen with the European Union,” Mr. Trump said on Sunday. “They don’t take our cars, they don’t take our farm products. They take almost nothing, and we take everything from the millions of cars, tremendous amounts of food and farm products.”
He added that the U.S. had a US$350-billion trade deficit with the EU and that the tariffs would be introduced “pretty soon.”
Stock markets in Britain and Europe fell sharply Monday morning in response to the rising trade tensions. London’s FTSE 100 Index opened 1.25 per cent lower while Germany’s DAX fell 2 per cent and the CAC 40 in France was down 2.1 per cent. Shares of European carmakers Volkswagen Group, BMW Group and Stellantis N.V. STLA-N fell as much as 6 per cent in early trading on Monday.
“What was considered to be bluff and bluster from Trump has turned into cold hard reality,” said Susannah Streeter, head of money and markets at financial services company Hargreaves Lansdown in London. “Investors are buckling up for a roller-coaster ride for the global economy, with the European Union expected to be next in line for punitive duties.”
Russ Mould, investment director at Manchester broker AJ Bell, noted that only four stocks in the FTSE 100 showed gains on Monday: bottler Coca-Cola Co. HBC; tobacco giants British American Tobacco Industries ATR BTI-N and Imperial Brands PLC; and British health care business Haleon PLC. “That sums up the mood perfectly. A can of coke, a cigarette and some headache tablets are simple things that could bring someone small relief in the face of chaos,” he said.
Leaders from the 27 EU member states met at a summit in Brussels on Monday that was supposed to focus on security issues but was dominated by talk of tariffs.
British Prime Minister Keir Starmer joined, marking the first time Britain has participated in an EU leaders’ meeting since leaving the bloc in 2020.
Mr. Trump has singled out the U.K. for a possible exemption to tariffs, saying that although Britain was “out of line” he could likely work out a solution with Mr. Starmer.
“Prime Minister Starmer has been very nice. We’ve had a couple of meetings, we’ve had numerous phone calls, we’re getting along very well,” he said.
Mr. Starmer, whose Labour Party came to power last July, is treading a fine line between Brussels and Washington. He has vowed to reset Britain’s relationship with the EU but he’s ruled out rejoining, partially over fears of antagonizing Mr. Trump.
He has also said he wants closer ties with the U.S. and a U.S.-U.K. trade deal. “In the discussions that I have had with President Trump, that is what we have centred on, a strong trading relationship,” Mr. Starmer said Sunday.
Officials in Britain have also been keen to point out in recent days that the country doesn’t have a trade deficit with the U.S.
Other European leaders have struggled over how to respond to Mr. Trump’s threat.
“It’s important that we don’t divide the world with numerous tariff barriers,” German Chancellor Olaf Scholz said Sunday after a meeting with Mr. Starmer in London. The EU is a “strong economic area and has its own courses of action.”
U.S. tariffs could be particularly damaging for Germany, the EU’s largest economy and the biggest European exporter to the U.S. The German economy is already struggling, and an election due later this month could prove inconclusive.
German auto companies will be especially vulnerable to Mr. Trump’s moves. European car manufacturers export around €56-billion ($84.3-billion) worth of vehicles and parts to the U.S., accounting for 20 per cent of all EU automobile exports. Germany’s car companies are the most exposed to the American market and its auto exports could fall by 7 per cent, according to an estimate from Oxford Economics.
Klaas Knot, president of the Dutch central bank, said the best response from the EU would be to avoid a trade war and do nothing, but he acknowledged that political considerations would almost certainly mean some kind of retaliation.
“Europe will not want to be pushed around,” he told Dutch television on Sunday. “We are also a powerful trade bloc with 400 million consumers.”