US tariffs on European goods threaten to shake up the world's largest
trade relationship
[July 07, 2025] By
DAVID McHUGH
FRANKFURT, Germany (AP) — The European Union expects to find out on
Monday whether President Donald Trump will impose punishing tariffs on
America’s largest trade partner in a move economists have warned would
have repercussions for companies and consumers on both sides of the
Atlantic.
Trump imposed a 20% import tax on all EU-made products in early April as
part of a set of tariffs targeting countries with which the United
States has a trade imbalance. Hours after the nation-specific duties
took effect, he put them on hold until July 9 at a standard rate of 10%
to quiet financial markets and allow time for negotiations.
Expressing displeasure with the EU's stance in trade talks, however,
Trump said he would increase the tariff rate for European exports to
50%, which could make everything — from French cheese and Italian
leather goods to German electronics and Spanish pharmaceuticals — much
more expensive in the U.S.
The EU's executive commission, which handles trade issues for the bloc's
27-member nations, said its leaders hope to strike a deal with the Trump
administration. Without one, the EU said it was prepared to retaliate
with tariffs on hundreds of American products, ranging from beef and
auto parts to beer and Boeing airplanes.
U.S. Treasury Secretary Scott Bessent told CNN's “State of the Union”
program on Sunday that “the EU was very slow in coming to the table” but
that talks were now making "very good progress.”
Here are important things to know about trade between the United States
and the European Union.
US-EU trade is enormous
The European Commission describes the trade between the U.S. and the EU
as "the most important commercial relationship in the world.”
The value of EU-U.S. trade in goods and services amounted to 1.7
trillion euros ($2 trillion) in 2024, or an average of 4.6 billion euros
a day, according to EU statistics agency Eurostat.
The biggest U.S. export to Europe was crude oil, followed by
pharmaceuticals, aircraft, automobiles, and medical and diagnostic
equipment.
Europe's biggest exports to the U.S. were pharmaceuticals, cars,
aircraft, chemicals, medical instruments, and wine and spirits.
EU sells more to the US than vice versa
Trump has complained about the EU's 198 billion-euro trade surplus in
goods, which shows Americans buy more stuff from European businesses
than the other way around.
However, American companies fill some of the gap by outselling the EU
when it comes to services such as cloud computing, travel bookings, and
legal and financial services.
The U.S. services surplus took the nation's trade deficit with the EU
down to 50 billion euros ($59 billion), which represents less than 3% of
overall U.S.-EU trade.
What are the issues dividing the two sides?
Before Trump returned to office, the U.S. and the EU maintained a
generally cooperative trade relationship and low tariff levels on both
sides. The U.S. rate averaged 1.47% for European goods, while the EU's
averaged 1.35% for American products.
But the White House has taken a much less friendly posture toward the
longstanding U.S. ally since February. Along with the fluctuating tariff
rate on European goods Trump has floated, the EU has been subject to his
administration's 50% tariff on steel and aluminum, and a 25% tax on
imported automobiles and parts.
Trump administration officials have raised a slew of issues they want to
see addressed, including agricultural barriers such as EU health
regulations that include bans on chlorine-washed chicken and
hormone-treated beef.
Trump has also criticized Europe's value-added taxes, which EU countries
levy at the point of sale this year at rates of 17% to 27%. But many
economists see VAT as trade-neutral since they apply to domestic goods
and services as well as imported ones. Because national governments set
the taxes through legislation, the EU has said they aren't on the table
during trade negotiations.
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Wheels of Parmesan cheese are stored in a deli in Rome, Thursday,
Oct. 3, 2019. (AP Photo/Alessandra Tarantino, File)
 “On the thorny issues of
regulations, consumer standards and taxes, the EU and its member
states cannot give much ground,” Holger Schmieding, chief economist
at Germany's Berenberg bank, said. “They cannot change the way they
run the EU’s vast internal market according to U.S. demands, which
are often rooted in a faulty understanding of how the EU works.”
'Consequence for many companies'
Economists and companies say higher tariffs will mean higher prices
for U.S. consumers on imported goods. Importers must decide how much
of the extra tax costs to absorb through lower profits and how much
to pass on to customers.
Mercedes-Benz dealers in the U.S. have said they are holding the
line on 2025 model year prices “until further notice.” The German
automaker has a partial tariff shield because it makes 35% of the
Mercedes-Benz vehicles sold in the U.S. in Tuscaloosa, Alabama, but
the company said it expects prices to undergo “significant
increases” in coming years.
Simon Hunt, CEO of Italian wine and spirits producer Campari Group,
told investment analysts that prices could increase for some
products or stay the same depending what rival companies do. If
competitors raise prices, the company might decide to hold its
prices on Skyy vodka or Aperol aperitif to gain market share, Hunt
said.
Trump has argued that making it more difficult for foreign companies
to sell in the U.S. is a way to stimulate a revival of American
manufacturing. Many companies have dismissed the idea or said it
would take years to yield positive economic benefits. However, some
corporations have proved willing to shift some production stateside.
France-based luxury group LVMH, whose brands include Tiffany & Co.,
Luis Vuitton, Christian Dior and Moet & Chandon, could move some
production to the United States, billionaire CEO Bernaud Arnault
said at the company’s annual meeting in April.
Arnault, who attended Trump's inauguration, has urged Europe to
reach a deal based on reciprocal concessions.
“If we end up with high tariffs, ... we will be forced to increase
our U.S.-based production to avoid tariffs,” Arnault said. “And if
Europe fails to negotiate intelligently, that will be the
consequence for many companies. ... It will be the fault of
Brussels, if it comes to that.”
'Road could be rocky'
Some forecasts indicate the U.S. economy would be more at risk if
the negotiations fail.
Without a deal, the EU would lose 0.3% of its gross domestic product
and U.S. GDP would fall 0.7%, if Trump slaps imported goods from
Europe with tariffs of 10% to 25%, according to a research review by
Bruegel, a think tank in Brussels.
Given the complexity of some of the issues, the two sides may arrive
only at a framework deal before Wednesday’s deadline. That would
likely leave a 10% base tariff, as well as the auto, steel and
aluminum tariffs in place until details of a formal trade agreement
are ironed out.
The most likely outcome of the trade talks is that “the U.S. will
agree to deals in which it takes back its worst threats of
‘retaliatory’ tariffs well beyond 10%,” Schmieding said. “However,
the road to get there could be rocky.”
The U.S. offering exemptions for some goods might smooth the path to
a deal. The EU could offer to ease some regulations that the White
House views as trade barriers.
“While Trump might be able to sell such an outcome as a ‘win’ for
him, the ultimate victims of his protectionism would, of course, be
mostly the U.S. consumers,” Schmieding said.
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