Experts Predict Trade Clash Between EU and US Over 'Fundamental Disagreements'

Michael Froman, president of the Council on Foreign Relations and a former USTR, said that trade tensions between the U.S. and the EU will continue as long as there remain fundamental differences in their economic policies. The U.S., he argued, is in support of an economy based on innovation, and the EU, that of regulation. "There is a fundamental disagreement over Europe's regulatory approach that the U.S. administration is likely to be pushing back on," he said.

Tariffs also will continue so long as "there is a manufacturing trade deficit ... with the EU, and there are higher average tariffs by the EU on the U.S." in very specific categories such as the auto industry, Froman said during an event organized by the Peterson Institute for International Economics. They might also be used to coerce the EU into increasing defense spending, a major sticking point in the first Trump administration, he said. Unless the EU is willing to make changes in these areas, he warned, "there's a certain degree of decoupling that is potentially there between the U.S. and Europe when it comes particularly to regulation and high-tech."

Bernd Lange, the chairman of the Committee for International Trade in the European Parliament, responded that the EU is looking to take measures to reduce the trade deficit by "buying a bit more energy, buying a bit more military equipment, and this is in the discussion." However, he also noted that the trade deficit shrank when taking services and investment into account.

While the EU is willing to make minor concessions, Lange confirmed that it will also take retaliatory measures: "As an answer to the steel tariff, there are still the counter-tariffs suspended, and they will come into force on the first of April, and we will have a similar situation as we had in 2021."

He agreed with Froman that Trump "is using tariffs as a political instrument for giving political pressure to countries," as seen with Colombia, Mexico and Canada, but worried that Trump's demands might go beyond what the EU is able to do, even if willing.

Cecilia Malmström, a senior fellow at PIIE who was moderating the discussion, concurred with that assessment, saying that the EU bureaucracy is too slow-moving to acquiesce to the rapid changes the Trump administration might demand. The digital regulations that Froman pointed out are often the product of long negotiations "and so they cannot be changed over a week just because Elon Musk doesn't like them," she said. Malmström was European commissioner for trade from 2014 to 2019.

There exists potential for cooperation, however; Froman said that the EU and U.S. can form a division of labor of sorts when dealing with China on trade. He noted that the U.S. did not benefit directly from its call to arms against Chinese telecommunications company Huawei, and that the direct beneficiaries were European companies like Erikson and Nokia. It is in these areas "where we can partner and have stronger division of labor," he said.

Malmström also said that the EU and U.S. have "common interest on some export control and dual-use exports with China in Europe." She speculated that there could be partnership in rare earth mineral production as well, saying that there could be "some joint investments in other countries to diversify, to maybe reduce the dependence from China, but try to work with other countries."