EU prepares retaliation plan as US hardens trade policy ahead of deadline

EU representatives will meet this week to prepare for a potential dispute with US President Donald Trump, who has hardened his stance in tariff negotiations ahead of the August 1 deadline.

The strong preference is to keep negotiations with Washington on track to end the stalemate before next month’s deadline.

However, according to sources familiar with the matter who spoke to Bloomberg, no concrete progress has been made following talks in Washington last week. The negotiations will continue for the next two weeks.

Speaking on the condition of anonymity, the sources indicated that the US now wants to apply a nearly universal tariff of over 10% on EU goods, with exemptions becoming increasingly narrow. These are limited to aviation, some medical devices and generic drugs, a few alcoholic beverages, and a specific group of manufacturing equipment needed by the US.

A spokesperson for the European Commission, which is responsible for the EU’s trade matters, said they would not comment on ongoing negotiations.

The two sides have also discussed a potential price cap for some sectors, as well as steel and aluminum quotas and methods to protect supply chains from sources that exceed metal supply. Even if an agreement is reached, sources noted that it would require Trump’s approval, and his position remains unclear.

“I’m confident we’ll get a deal. I think all these important countries will realize it’s better to open their markets to the United States than to pay a significant tariff,” said US Commerce Secretary Howard Lutnick on CBS’s Face the Nation on Sunday.

Lutnick added that he had spoken with European trade negotiators.

Earlier this month, the US President wrote a letter to the EU, warning that a 30% tariff would be applied to most of the bloc’s exports starting August 1.

In addition to the general tax, Trump imposed a 25% tariff on automobiles and auto parts, and double that on steel and aluminum. He has also threatened to introduce new taxes on pharmaceuticals and semiconductors next month and recently announced he would impose a 50% tax on copper.

The EU estimates that the tariffs imposed by the US already amount to €380 billion ($442 billion), covering 70% of its exports to the US.

Before Trump’s letter, the EU was hopeful it was moving toward an initial framework that would allow detailed talks to proceed based on a universal rate of 10% for many of the bloc’s exports.

The EU is demanding broader exemptions than what the US has offered and is trying to protect the bloc from future sectoral tariffs. While it has long been accepted that any deal would be asymmetrical in favor of the US, the EU will assess the overall imbalance of the agreement before deciding to take any rebalancing measures.

The level of pain member states are willing to accept varies, with some indicating they are open to higher tariffs if sufficient exemptions are provided.

Any agreement will also address non-tariff barriers, cooperation on economic security issues, digital trade consultations, and strategic procurement.

With the likelihood of a positive outcome diminishing and the deadline approaching, the EU is expected to begin preparing a plan to act quickly if an agreement cannot be reached. Any decision on retaliation will require the political approval of bloc leaders due to the high stakes involved.

In response to Trump’s metal tariffs, the EU has already approved potential tariffs on €21 billion worth of US goods that can be implemented quickly. These tariffs target politically sensitive American states and include products such as soybeans from House Speaker Mike Johnson’s home state of Louisiana, other agricultural products, poultry, and motorcycles.

The EU has also prepared a list of tariffs to be applied to an additional €72 billion of American products in response to Trump’s “reciprocal” taxes and automotive tariffs. These tariffs target industrial goods like Boeing aircraft, US-made cars, and bourbon whiskey.

The EU is also working on potential measures that go beyond tariffs, such as export controls and restrictions on public procurement contracts.

Bloomberg reported last week that a growing number of EU member states want the bloc to activate its most powerful trade tool, the “anti-coercion instrument” (ACI), against the US if the two sides fail to reach an acceptable agreement and Trump follows through on his tariff threat.

The ACI would grant officials broad powers to take retaliatory measures. These could include new taxes on US tech giants or targeted restrictions on US investments in the EU.

Furthermore, access to certain parts of the EU market could be limited, or US companies could be restricted from participating in public tenders in Europe.

The anti-coercion instrument is designed primarily as a deterrent and, if necessary, can be used to respond to deliberate coercive actions by third countries that use trade measures to pressure the sovereign policy choices of the 27-nation bloc or individual member states.

The Commission can propose the use of the ACI, but it is up to the member states to decide whether a situation of coercion exists and whether it should be implemented. Throughout the process, the EU will engage in consultations with the coercing party to find a solution.

Member states were briefed on the status of trade negotiations with the US on Friday.