Recalibrating EU trade policy in the second era of Trump tariffs
Monday, 5 May 2025
With transatlantic trade tensions escalating fast, and the United States rolling out a new wave of tariffs on key partners—including the European Union—Europe faces a moment of reckoning for its trade strategy. In the latest Future is Blue podcast, I sat down with two top experts to unpack what’s at stake: Ignacio García Bercero, non-resident fellow at Bruegel and former EU chief trade negotiator with the U.S., and Miguel Ángel González Simón, economist at Funcas.
[You can listen to the podcast here]As the U.S. edges toward what some have called a tariff-first foreign policy, Brussels must decide whether to retaliate, recalibrate, or reinvent its global trade strategy.
What is Washington really trying to achieve?
The heart of the conversation began with a simple yet vexing question: What does the U.S. want? According to García Bercero, even that remains murky.
“There’s no clarity whatsoever about what the United States is trying to achieve with this new tariff policy,” he warned. “It is being deployed in the most chaotic manner, and I think that creates a whole new range of uncertainty.”
Unlike previous negotiation processes, such as the ill-fated Transatlantic Trade and Investment Partnership (TTIP), there is no shared objective between the EU and U.S. today. “Even under Trump’s first term, we were at least managing a limited conflict. Now it’s something totally different,” García Bercero added.
Retaliate, but with strategy
So how should Europe respond? García Bercero was unequivocal: Europe must be prepared to retaliate—but wisely.
“It’s normal that the EU is ready to negotiate. But there are limits. If we can’t reach a balanced agreement after 90 days, we should be ready to retaliate.”
He also pointed out that Washington may have miscalculated the market’s reaction, which could create pressure to de-escalate. Still, for Europe, the solution must go beyond damage control. It’s also about defending the rules-based international order.
“This shouldn’t just be about the U.S. It’s about strengthening alliances with countries that still believe in a rules-based trading system,” he said.
Looking beyond Washington: Mercosur and the Indo-Pacific
While much of the attention is on the U.S., García Bercero emphasized that Europe’s trade strategy must not become overly fixated on the transatlantic front. In fact, he was clear about where EU trade efforts should be redirected.
“If the European Union fails to ratify Mercosur, then I think there’s a fundamental problem of credibility for our trade policy,” he said, calling it the EU’s “absolutely top priority.”
Beyond Mercosur, he pointed to two additional fronts. First, the Indo-Pacific region, where finalizing agreements with ASEAN countries or India would send a powerful signal of Europe’s continued global engagement. Second, deepening alliances with countries that share a commitment to rules-based trade—particularly members of the CPTPP.
“There should be a meeting between the EU and CPTPP trade ministers,” he argued, to align responses to U.S. tariffs and explore WTO reform together.
In short, a forward-looking European trade strategy calls for engaging globally—with or without Washington’s cooperation.
The economic fallout: A demand shock
Turning to the economic picture, González Simón provided a sobering assessment. “We’re looking at a negative demand shock,” he said. The uncertainty generated by U.S. policy is already affecting investment and trade flows.
“Just to give you some numbers: In December we expected more than 1% GDP growth for the euro area in 2025. That’s now been revised down to slightly more than half a percentage point.”
But numbers only tell part of the story. What matters most is the mechanism behind them. “Investment is the first casualty of uncertainty,” he explained, referencing past studies on how tariff threats hurt not just bilateral trade but also investment confidence in third countries.
He advocated for a coherent policy response—“a mix of expansionary monetary and fiscal policy”—while acknowledging the limitations posed by Europe’s high debt levels. In that context, strengthening internal demand by boosting the Single Market becomes even more vital.
Can diplomacy win the day?
Could Europe strike a truce or “standstill” deal with the U.S.? García Bercero was skeptical. “Let’s not be under any illusions. A broad trade agreement with the U.S. is simply not realistic today,” he said. Instead, Brussels should aim for a modest package to limit the damage—perhaps sectoral tariff reductions, regulatory cooperation, or increased LNG imports from the U.S.
“But,” he warned, “to get there, the EU needs a credible retaliation strategy.”
What comes after the WTO?
With the WTO’s appellate body still paralyzed, I asked whether alternative mechanisms like the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) could help. “Yes—for those within the MPIA,” García Bercero confirmed, citing a recent case between the EU and China as evidence of its functionality.
However, the U.S. is not part of this arrangement and likely won’t be any time soon. Even so, bringing a WTO case against the U.S. would have symbolic value. “It would show that, for many countries—including traditional U.S. allies—rules still matter.”
In the long-term, the EU should work toward laying the ground for WTO reform, even if negotiations can’t start under the current U.S. administration.
Europe: A global actor in Its own right?
Perhaps one of the most striking takeaways came in the closing remarks. González Simón cited a survey by the European Council on Foreign Relations revealing that while outsiders see the EU as a global power, Europeans often don’t believe it themselves.
“We need to start seeing ourselves as an important actor,” he said. “The rest of the world already does.”
In these uncertain times, believing in Europe's own strategic agency may be the first step to navigating the storm ahead.
[You can listen to the podcast here]Carlos Carnicero Urabayen