US tariffs: Is EU retaliation inevitable? - Standard Chartered

A sliding scale of potential EU retaliation against US tariffs, depending on trade negotiation progress. Sectoral tariffs are likely to be the key determinant of how far the EU is willing to push its own tariffs. There's a growing risk of EU retaliation following the 9 July deadline, even if talks are extended. However, any EU retaliation is likely to be narrower, less severe and more targeted than US measures, Standard Chartered's economist Christopher Graham reports.

EU may show some teeth

"We recently noted that the contours of an EU-US trade deal were emerging, and that there was EU growing readiness to accept a minimum US baseline tariff without resorting to retaliation. However, US sectoral tariffs are likely to elicit a retaliatory response from the EU, particularly those already in place on autos (at 25%) and potentially yet to come on pharmaceuticals. If major concessions were offered to the EU on these fronts - as we have so far seen with the UK-US deal - then the EU may still opt not to retaliate, for fear of sparking an economically damaging tit-for-tat trade war; but this would be a difficult outcome for the EU to achieve, in our view. If instead substantial tariffs remain in place, we think some degree of EU tariff retaliation is likely."

"We also think there is a growing risk that this retaliation could come soon after the 9 July deadline passes, potentially on 14 July when the current paused EU tariffs are set to take effect. Our base case remains that a framework deal or memorandum of understanding can be agreed by the 9 July deadline that allows for an extension of negotiations and US tariffs at their current rates. However, the EU will likely calculate that it needs to increase its economic leverage to ensure the best possible trade deal. This could include activating retaliatory measures already on the table to create a new benchmark from the EU side, despite some EU states being concerned that this could destabilise talks. At the very least, we are likely to see stronger threats of retaliation from the EU, including broadening the range of potential targets to include US services."