How US Tariffs Fundamentally Altered the EU’s Foreign Policy: Bilateral Negotiations, Retaliatory Measures, and Trade Diversification
By Trevor Hou
Tariffs Overview
Since the second inauguration of US President Donald Trump, tariffs have taken an increasingly significant role on the international stage. Although tariffs were a political and diplomatic tool that Trump widely used during his first term, their rates were nowhere close to those levied during his second term. In fact, during 2025, US import tariffs reached an average of 9.6%, an eight-decade record and substantially higher than the 2.4% average prior to the increase.
Historically, US tariffs on the European Union have been low. As a key ally and trading partner, the EU has been subject to an average tariff rate below 2.5% since 2005. During Trump’s first term, average tariff rates on the EU never rose above 2%, a testament to the strength of the alliance between the two countries. However, the political and economic relationship between the US and European nations took a sharp turn during Trump’s second term, with the US levying sweeping import tariffs at unprecedentedly high rates.
On April 2, the expansive collection of “Liberation Day” tariffs set a baseline rate of 10%, with many countries facing significantly higher duties. The Office of the United States Trade Representative also released an equation for calculating tariffs that seeks to balance out bilateral trade deficits and regulatory barriers:
Δτᵢ = (xᵢ − mᵢ) / (ε · φ · mᵢ)
Δτᵢ denotes the change in tariff rate for country i. xᵢ and mᵢ denote exports and imports respectively. ε and φ are the elasticities of import value relative to import price and import prices relative to tariffs. Experts from the American Enterprise Institute have criticized the administration's choice of ε = 4 and φ = 0.25 as erroneous, overestimating the tariffs by 300%.
Following the April 2 rollout, the administration continued to pursue its tariff program and trade negotiations; nations addressed the tariffs through bilateral talks with the US, seeking to lower rates through trade deals and political agreements. More significantly, the tariffs also signaled a shifting world order, with many countries reconsidering the strength and effectiveness of their diplomatic and economic ties with the US. The tariffs have pushed countries to build stronger trade deals with new actors, reducing their dependency on US exports.
On February 20, 2026, the Supreme Court ruled 6-3 against Trump’s far-reaching tariffs that were imposed through the International Emergency Economic Powers Act (IEEPA), a piece of legislation that empowers the president with increased economic authority when a national emergency is declared. After the ruling, the Trump administration responded by imposing a 10% universal import tariff, citing Section 122 of the Trade Act of 1974, which allows the president to levy temporary tariffs in the event that the US has a substantial trade deficit. However, the president only has authority to levy these tariffs for 150 days, with extending the tariffs beyond that period necessitating congressional approval.
Although the Liberation Day tariffs were struck down, tariffs altogether continue to be a centerpiece of the Trump administration’s agenda and will likely remain so in the near future. Therefore, it is crucial to examine their impact on the EU, the US's largest trade partner by export volume.
EU Direct Response to the US
Prior to April 2nd, the EU had already been preparing to respond to tariffs. The EU’s diplomatic strategy with the US consisted of two actions: negotiations and retaliatory measures. On February 3, 2025, before a meeting, EU leaders clarified the bloc’s stance, advocating for diplomatic solutions while also reiterating potential retaliatory measures. European leaders, such as French President Emmanuel Macron and Luxembourgish Prime Minister Luc Frieden, expressed the possibility of the EU levying tariffs on the US. On February 10, the EU was subjected to its first set of tariffs from the second Trump administration, which were 25% on all aluminum and steel imports, effective beginning March 12. The European Commission immediately criticized them, stating that it “sees no justification for the imposition of tariffs on its exports,” while also reiterating its mission to protect its own people’s interests. On March 11, the EU announced that it would be imposing tariffs on €26 billion worth of US goods, matching the economic scope of US tariffs affecting around $28 billion of EU exports. At the same time, European Commission President Ursula von der Leyen reiterated the EU’s willingness to negotiate.
The EU was hit with another round of tariffs on April 2, during which the White House levied “Liberation Day” reciprocal tariffs via the IEEPA. The EU was subject to an additional 20% reciprocal tariff. The new tariffs affected EU exports of €380 billion, increasing the duty paid by buyers from €7 billion to €80 billion. European Commissioner for Trade and Economic Security Maroš Šefčovič outlined the EU’s strategy during a press conference on April 6, which consisted of three main points: first, recognizing the value and potential of EU-US trade, acknowledging the importance of reevaluating current trade and reiterating the possibility of zero-for-zero tariffs; second, emphasizing the EU’s willingness and commitment for negotiation; third, establishing countermeasures, diversifying EU trade, and protecting domestic markets from trade diversion. These stances were further solidified after the White House announced a 90-day reciprocal tariff pause on April 9, shortly after which Šefčovič engaged in talks with US officials in Washington, DC, and reiterated the EU’s proposed zero-for-zero industrial goods tariff deal. On the same day, von der Leyen also announced that the EU would delay implementing countermeasures for 90 days. Throughout the early stages of US tariffs, the EU continuously prioritized a diplomatic, negotiations-based approach. While it did seek to impose countermeasures, potential counter-tariffs sought to match, rather than exceed, the cumulative value of goods the US levied tariffs on, suggesting that the EU desired leverage when negotiating with the US rather than entering a prolonged trade conflict. However, the sheer scale of potential retaliatory measures, as well as the EU’s new commitments to trade diversification and protecting its domestic industries, suggests a shift in how the EU perceives its trade relationship with the US. No longer can it count on the US to be a reliable partner, as trade with the US entails substantially more risk than before.
Throughout the early and mid-summer of 2025, the EU reoriented its trade policy, continuing negotiations and retaliatory measures against the US. On May 8, 2025, the European Commission presented a new set of potential tariffs that would affect €95 billion worth of US imports. Although US “Liberation Day” tariffs were still not in effect, due to the 90-day grace period, the EU’s decision to increase pressure on Washington suggested that they were transitioning to a harder stance on the issue, especially given the already existing economic strain from other tariffs that were not part of the April 2 package. In July 2025, the EU proposed a new set of counter-tariffs that would affect €93 billion of US imports, a slight decrease compared to the original €95 billion proposal in May. This development came after Trump threatened sweeping 30% tariffs on EU products if a deal was not reached by the beginning of August. However, the EU also stated in its document about proposed retaliatory tariffs that it determines which sectors of the US it would target based on “availability of alternative sources of supply from outside or inside the EU.” Evidently, Brussels increasingly desired to mitigate harm and alleviate strain on crucial economic sectors rather than arriving at a sweeping settlement. The EU’s shift toward retaliatory measures signaled that, in its eyes, the US was no longer the close ally that it once was. In the past, the EU wanted to reduce or eliminate tariffs. By mid-2025, the EU appeared to accept that tariffs were increasingly difficult to avoid and began preparing for them rather than focusing solely on preventing them.
On July 27, 2025, Brussels and Washington reached a deal. A 15% tariff, rather than the original 30%, would be levied on most EU imports into the US. At the same time, the EU pledged $600 billion in investments to the US and $750 billion in American energy purchases, but was still subject to the 50% tariffs on aluminum and steel. Furthermore, all industrial goods from the US could enter the EU tariff-free. Through the trade deal, the EU made substantially more concessions than the US. While the US was able to create certain trade conditions that were more favorable than ever, such as zero tariffs for some of its products, the EU made sizable compromises that stemmed from the economic leverage that the White House created in less than a year. Analysis from the Center for Strategic & International Studies indicated that the EU suffered major geopolitical losses but was able to mitigate inflation from the deal, suggesting that Brussels focused on protecting domestic industries over political victories while also maintaining the possibility for further negotiations.
Throughout the rest of 2025, Brussels continued to pursue talks with Washington, maintaining the July trade deal while seeking to lower additional tariffs, such as those on aluminum and steel. However, further trade instability between the US and EU occurred in January 2026, when Trump increased pressure on Denmark to acquire Greenland. On January 17, Trump announced that he would impose 10%, and eventually 25%, tariffs on six EU nations — Denmark, Finland, France, Germany, the Netherlands, and Sweden — as well as two other European nations, Norway and the UK, for pushback on his actions to buy Greenland. In response, the EU reiterated its openness to approach the situation diplomatically through dialogue. However, the €93 billion counter-tariff package, originally prepared in 2025, also garnered widespread support. Although less popular, Brussels also considered employing the Anti-Coercion Instrument (ACI), which would lessen US imports, restrict US business, and limit US foreign direct investment. Although the ACI was never implemented, the fact that this never-before-used measure was even considered illustrated weakening relations between the EU and the US. Eventually, Trump paused the threatened tariffs that would have come into force on February 1st after talks involving NATO at Davos, Switzerland.
Overall, the EU has seen a wave of unprecedented tariffs from the second Trump administration, and relationships long thought to be stable were challenged. Initially, the EU tried to eliminate US tariffs altogether through negotiations and limited economic retaliation. Eventually, the EU accepted the fact that its trade relationship with the US had weakened and that tariffs were unavoidable. After that realization, it worked towards reducing, rather than removing, US tariffs, while also increasing the magnitude of its retaliatory tariff threats. Eventually, the EU was able to reduce or eliminate tariffs on certain commodities, but tariffs on other products remained high. For instance, tariffs on steel and aluminum, which were increased to as high as 50% in 2025, remained largely in place. Despite this, the EU never implemented large-scale retaliatory measures. Retaliatory tariff packages that Brussels prepared, which would have applied to €95 billion in imports, were often delayed or canceled, being used only as leverage in negotiations and withheld to prevent further escalation.
EU Trade Diversification with Non-US Nations
US tariffs represented a shift in the conventional world order, fundamentally altering the EU’s geopolitical and economic position. Both think tanks and EU researchers have called for the EU to reduce its dependence on the US, which hinders its ability to act autonomously. For instance, the prominent Brussels-based European think tank Bruegel called for the EU to form new global partnerships in order to maintain a rule-based international order. The EU’s actions thus far in the second Trump administration largely reflect these sentiments, during which Brussels has accelerated and revived talks with countries in both the Global North and South to navigate an increasingly protectionist world.
Mexico and Mercosur
Throughout 2025 and into 2026, the EU has sought to increase trade with Mexico and the Mercosur bloc, which comprises Argentina, Brazil, Uruguay, and Paraguay. To the EU, Latin America offers large, untapped markets and crucial resources, which, when coupled with uncertainty regarding future trade with the US, offer strategic and financial incentives for strengthening ties. Furthermore, increasing trade with Latin America allows the EU to signal itself as being in a position of independence and autonomy, potentially offering it increased leverage in talks with the US.
Brussels’ talks with Mexico and Mercosur predate the second Trump administration. For instance, in 2000, the EU and Mexico signed an agreement titled “Economic Partnership, Political Coordination and Cooperation Agreement between the European Community and its Member States, of the one part, and the United Mexican States, of the other.” In January 2025, the EU and Mexico entered talks to modernize their 2000 trade deal in light of potential tariffs from the US. The negotiations were finalized on January 17. During May 2026, an Interim Trade Agreement was signed, while the full agreement still awaits ratification. However, once it is in full force, it will expand EU agricultural exports to Mexico and introduce new means of protecting labor rights and the environment.
A similar dynamic was evident in the EU’s new deal with Mercosur. After an EU-Mercosur trade agreement stalled over environmental concerns, such as deforestation and sustainability, it reemerged in December 2024 as part of the EU’s broader effort to “de-risk.” Coupled with pressure from the US and seeking economic security, the proposed agreement eventually gained approval from member states and was signed in Paraguay on January 17, 2026. Moreover, like the deal with Mexico, the deal with Mercosur entailed new climate protection objectives, suggesting that, through trade diversification, the EU sought to establish its agenda internationally. If the new deal goes into full effect, it would reduce around €4 billion in tariffs between the two blocs.
ASEAN
In Asia, the EU focused on forming new trade relationships in the ASEAN bloc. Being the EU’s third-biggest trade partner, ASEAN provides the EU with ample opportunity to diversify its trade portfolio and increase its economic security. Moreover, US tariffs also pressured ASEAN countries to diversify their trade, setting the stage for accelerated EU-ASEAN talks. For instance, after talks slowed down in 2012, the EU and Malaysia decided to restart free trade negotiations on January 20, 2025, and held their first round of talks during June and July of the same year.
The most notable development involving an ASEAN country was the EU’s agreement with Indonesia. The EU began free trade negotiations with Indonesia during 2016, and, on July 13, 2025, the two countries arrived at an agreement named the Comprehensive Economic Partnership Agreement (CEPA). On September 23, 2025, CEPA was finalized, which meant that both countries would eliminate duties on more than 90% of goods while also increasing bilateral trade. The deal would help Indonesia increase exports of certain commodities, such as palm oil and textiles, while providing the EU with a source for key minerals. However, Indonesia’s palm oil industry, the largest in the world, will still face a significant barrier when entering the EU market: the EUDR. The EU Deforestation Regulation, which requires exporters to prove that their goods did not come from land deforested after 2020, will go into effect on December 30, 2026.
India
The EU also turned to India to move trade away from excessive dependence on the US. Like the EU’s outreach to Mexico, Mercosur, and ASEAN, its push toward India did not begin in 2025. Trade talks had been revived earlier, but they gained much more momentum during 2025 as tariffs and increased trade tensions from the US pushed the EU to look for more stable partnerships.
In February 2025, during von der Leyen’s visit to India, the EU and India agreed to target finishing negotiations on a free trade agreement by the end of the year. They reaffirmed their target deadline again in May, illustrating that the negotiations had become crucial for both Brussels and New Delhi’s trade diversification. The deal was finalized on January 27, 2026, and will lead to a large-scale elimination of Indian import tariffs on the EU. By 2032, India is expected to eliminate or lower tariffs on EU goods exports covering 96.6% of their total value.
Conclusion
Ultimately, the EU’s response to Trump’s second-term tariffs reveals a significant transformation in how Brussels approaches trade in an increasingly protectionist and unpredictable political landscape. The EU adopted three main approaches in response to sweeping US tariffs: prioritizing dialogue with Washington, preparing retaliatory measures when necessary, and building alternative partnerships. The EU’s efforts to strengthen economic ties with Mexico, Mercosur, ASEAN, and India signal that trade diversification is increasingly a priority for the EU’s foreign policy. At the same time, the EU’s diplomatic approach toward the US suggests that it was seeking neither a complete break nor an escalation. Instead, it recalibrated its relationship with Washington, aiming to maintain connections while also reducing dependence. Overall, US tariffs pushed the EU to obtain greater autonomy, diversification, and economic security, which will enable the bloc to better respond to an increasingly volatile global economy.
