As of July 1^st, the EU will impose additional tariffs on US imports worth 3.3 billion USD. The decision was made after the US announced to tariffs of 10% and 25% on aluminum and steel from the EU, Canada, China, and Mexico.

The result is likely to be losses for both sides and a breaking the global trade order and the commitments of the World Trade Organization. If the trade war escalates, it could wreck global growth and financial stability.

Trade retaliation escalates

The US tariffs on steel and aluminum are the highest since 1971 and have drawn a strong reaction. The European Council decried the decision saying it will protect the EU’s rights in line with WTO regulations. The EU said President Trump is provoking the EU and they will impose 25% tariffs on 200 American products including motorcycle, cigarettes, and whisky.

Some analysts predict President Trump will levy new tariffs on even more products imported from the EU. During his 2016 campaign, Trump persistently touted the trade protectionism and denounced free trade and economic globalization. He promised to impose more tariffs on imported products because the US is being exploited by other countries. To keep his promise, President Trump has launched a trade confrontation between the US and its partners.

Risks for the EU, global economy

According to the Organization of Economic Cooperation and Development, the new tariffs will reduce global trade 6% and the GDP of many targeted countries including the EU 2%.

The tariff retaliations between other countries and the US are creating new trade barriers prompting production costs and prices to multiply.  Economic tensions between the US and the EU could soon become an all-out trade war which will make inflation in the US rise sharply and drive away jobs. The EU will also suffer because the US is its most important trade partner and export market.