That the US now intends to impose additional tariffs of 25% on EU exports (along with those of other countries) is now stated US policy following remarks President Trump made at his first cabinet meeting yesterday. The question is not whether, but when. It would be prudent to plan for high tariffs on EU farm exports to the US.
‘Tariff Man’ Trump has threatened tariffs on other countries previously and then, at least temporarily, backed off. On February 1, 2025, he imposed a 25% additional tariff on imports of Canadian- and Mexican-origin goods (since suspended for 30 days, but he has now confirmed that they will be introduced on March 4th having previously stated April 2nd) and a 10% additional tariff on imports of Chinese-origin goods. The additional tariff on Chinese imports is now in effect and China announced limited retaliatory measures a few days afterwards. Today President Trump announced a further 10% tariff on Chinese imports to take effect from March 4th.
On February 10, President Trump issued Proclamations imposing and extending 25% tariffs on imported steel and aluminium products under Section 232 of the Trade Expansion Act 1962 to go into effect on March 12, 2025. Section 232 permits the President to impose tariffs where national security is threatened. This repeats an action from the Trump I administration which also included imports of these products from the EU. When talks at the WTO failed to remove these tariffs, the EU imposed retaliatory duties on a range of US exports seen as politically significant (whisky, peanut butter, Harley Davidson motorcycles, jeans, orange juice, steel and aluminium).
A temporary solution was found under the Biden administration which introduced a tariff rate quota system. The agreement allowed EU exporters to avoid these tariffs as long as their exports remained below certain levels. Initially set to expire at the end of 2023, the TRQ agreement was extended to December 31, 2025. It was reported that the US and EU were working on a broader agreement that would replace the current tariffs with a system based on the carbon emissions of the imported product. This and other exemptions also granted to other exporters will terminate on March 12, 2025.
Listening to Trump’s comments after the cabinet meeting yesterday (see video courtesy of the Guardian), it would be unwise to plan on the assumption that Trump might be dissuaded from implementing these additional tariffs, despite President Macron’s back-slapping in Washington earlier this week. Although he held open the possibility that there may be some exemptions (think Italian pasta or Hungarian exports of Tokaj dessert wines), he specifically mentioned farm products as an area where the US was unable to export to the EU for all kinds of different reasons whereas the US was open to EU farm exports. In this post, we provide an initial appraisal of the commodities most likely to be affected.
EU agri-food exports to the US
The following table shows the amount of trade in agri-food products between the US and the EU in US dollar terms. Overall, the US has a significant deficit on its agri-food trade with the EU, one that has been growing over time. The table breaks down this trade by processing level. Bulk products (e.g. wheat, rice, soybeans) are unprocessed farm products. Intermediate products have undergone some first-level processing (sugar, vegetable oils, oilseed cake). Consumer-oriented products include some minimally processed food products (beef, poultry, dairy, fresh fruit and vegetables, wine) but also spirits, chocolate products, food preparations and baked goods. It can be seen that, whereas EU exports are predominantly in the consumer-oriented goods category, more than half the US exports to the EU are in the bulk and intermediate product categories.
The seven top-ranked products in terms of export value in 2024 are shown in the following table. These seven products between them account for two-thirds of the total value of EU agri-food exports.
Of these seven products, distilled spirits and essential oils have a more limited impact on farm production. Much of the value of spirits is in the brand name and the production process, and similarly for essential oils (concentrated oils derived from flowers (lavender, jasmine), leaves (eucalyptus, peppermint), fruits (citrus peels) or roots and bark (ginger, cinnamon) used in aromatherapy, skincare and personal care products, alternative medicine and perfumes. The main impacts on primary producers will arise from tariffs on wine, dairy products (most importantly, cheeses), vegetable oils (which in this case mainly concerns olive oil), baked goods including pasta products, and processed fruit and vegetables (tomatoes).
For example, over one-third of olive oil exports by value go to the US, and around one quarter of wine exports. Given that there is already a high level of domestic EU consumption, it will be difficult in the short run to find alternative markets. For dairy, pasta and processed vegetables, alternative markets may be easier to find following a period of immediate disruption.
What can the EU do?
What are the EU’s options when US tariffs are imposed? They come under three headings: dialogue, litigation and retaliation.
Dialogue. The dialogue option essentially involves offering Trump something in return for exempting the EU from tariffs so that he feels satisfied that he has a win. For example, EU voices have suggested that the EU could increase its imports of liquified natural gas (LNG) or soyabeans to help redress the trade imbalance in the EU’s favour, and there have been suggestions that the EU Commission has contemplated offering to lower EU tariffs on the import of US cars (although the Commission has denied that such an offer has been made, and in any case it would have to be an across-the-board tariff cut on all car imports in order to be consistent with the most-favoured-nation principle enshrined in Article 1 of the World Trade Organisation’s rules).
Such a dialogue-based approach might have some hope of success if Trump’s actions are purely transactional. You buy more US goods from me, and I will see that as sufficient grounds not to impose tariffs on your exports. Trump’s motives may also extend beyond purely economic concerns, as with his veiled threat to retaliate if Denmark did not hand over Greenland to the US, or European nations do not increase their defence budgets and contributions to NATO.
The transactional view gained some credence when Trump first threatened to impose tariffs on imports from Mexico and Canada, justified by their alleged lack of action to address facilitating migrants and entry of fentanyl opioids, and then suspended these tariffs when both countries promised to increase border security. However, the fact that Trump has now confirmed that the tariffs will go ahead suggests that this was not the main objective of the tariffs in the first place.
Instead, we need to understand Trump’s tariff strategy in the context of his overall economic policy. He intends to renew corporate tax breaks which will cause a further ballooning of US borrowing and national debt. While Musk’s chainsaw massacre of US federal government agencies may offset some of this, Trump sees revenue from tariffs as making up the gap. On this basis there is nothing to negotiate about as any exemptions from tariffs will make achieving Trump’s goal (however unrealistic it may be to start with) more difficult.
There is also the fact to take into account that agreements with Trump are not worth the paper they are written on. The US now cannot be relied upon to stick by its agreements, and Europe had better learn that lesson quickly. At best, we can try to fend off damaging actions for a period of time, which may give us some time to make the necessary structural adjustments, but we should recognise that Trump’s America First policy implies that he no longer feels bound by international agreements, even those he himself may have negotiated.
Litigation. The second option is litigation, which essentially means challenging the legitimacy of the US actions at the World Trade Organisation. This is unlikely to have any substantive result. Trump has as little respect for the WTO as he has for climate science, and indeed successive US Presidents have succeeded in undermining the dispute settlement role of the WTO by refusing to agree to the appointment of Appellate Body judges.
The case of Spanish table olives is illuminating also regarding the length of time litigation takes (the summary in these paragraphs is based on the WTO summary of the case to date). This case arose after the US Department of Commerce imposed countervailing duties in August 2018 on imports of ripe Spanish table olives following an investigation by the US International Trade Commission. It found that CAP subsidies paid to olive growers were passed through as a subsidy to the processed olives. The EU asked for WTO adjudication and a panel was established in October 2019. Partly due to COVID difficulties the panel did not issue its findings until November 2021. The panel upheld several of the EU’s challenges to the US action.
The US informed the WTO that it intended to implement the findings of the panel and asked for a reasonable period of time to do so. It agreed with the EU that this should be before 14 January 2023. The US informed the WTO in January 2023 that it had complied with the panel findings and had revised its calculation of the countervailing duties but still maintained them. The EU asked for a compliance panel as it disagreed that the US had implemented all the panel’s findings. This was established in July 2023 and its report issued in February 2024 upheld the EU’s complaint. In November 2024 the EU requested WTO authorisation to suspend concessions to the US given the non-compliance with the panel findings.
The US objected to the proposed level of suspension of concessions and an Arbitration Panel was established to adjudicate on this issue. The work of this panel is still ongoing. In the meantime, the US countervailing duties on imports of Spanish ripe table olives are still in place. In August 2024, the US Department of Commerce and the US International Trade Commission determined that revoking these duties would likely lead to the continuation or recurrence of dumping and net countervailable subsidies, as well as material injury to the US industry, and the duties have been continued. While COVID contributed to the length of time that this litigation has taken, and litigation may still be an appropriate route to take when an individual product is affected, on its own it would hardly seem a convincing response to the imposition of across-the-board tariffs
Retaliation. The European Commission has made clear, if dialogue fails to alter the US government’s intentions, that it stands ready to retaliate by imposing its own tariffs on US imports. For this purpose, it has to hand the newly-introduced Anti-Coercion Instrument adopted in November 2023 and so far unused. A blog post from the law firm Cleary Gottlieb Steen & Hamilton LLP provides a good summary of how this might be used. The big constraint on using retaliation is that it is likely to damage EU industries and consumers as much as US ones unless it is carefully calibrated. Obvious items include luxury and consumer goods where there may be good substitutes available from other sources. There can also be an attempt to target products produced in US states with significant Trump support.
Nor is retaliation likely to bring much relief to those agri-food sectors previously identified as likely to be most affected by US tariffs. We could close the EU market to imports of US wines but this would give limited relief to EU wine growers. EU imports of US wines only amounted to $168 million in 2024, compared to US imports of EU wines valued at $5.7 billion. Similarly, EU imports of US dairy products only amounted to $167 million in 2024, compared to EU exports of dairy products to the US of $2.9 billion. EU imports of vegetable oils only amounted to $101 million in 2024, compared to EU exports to the US of $2.9 billion.
The two largest agri-food items exported by the US to the EU are tree nuts (valued at $2.7 billion in 2024) and soybeans (valued at $2.4 billion in 2024). Whether we want to make nuts more expensive when we are trying to increase consumption of nuts in the EU for health reasons is a moot point. And putting tariffs on imports of US soybeans would increase costs for EU livestock farmers and run counter to the strategy of diversifying soybean imports away from South American countries. However, the third largest import item is US spirits. Imports were valued at €1.2 billion in 2024 and would be an obvious target.
The impact on export volumes to the US of a 25% tariff on olive oil is hard to assess. The following chart shows total extra-EU exports of olive oil and their unit value since the 2017/2018 marketing season. Olive oil production has been adversely affected by drought and extreme weather events, such as unexpected frosts and temperature fluctuations that have damaged olive trees at critical stages of their development, reducing the yield and overall quality of olives. Increased production costs and labour shortages have also contributed to the decline in production and thus exports. As demand has remained buoyant, the reduced supply has contributed to a very significant increase in the export prices of olive oil (an increase from an average value of around €400/100 kg to a peak of €1000/100 kg. Prices have slipped a little as production has slightly recovered over the past year. Still, there would appear to be scope for exporters to absorb some of the tariff to enter the US market and still remain profitable.
Source: International Olive Council
The impact on wine exports and producers is likely to be much harder. Global wine consumption is falling, as is global wine production (OIV, 2024). Wine production in the EU is not only adversely impacted by these market conditions, but also by the need to adjust to the impacts of climate change, especially given that vineyards are a multi-decade investment (Wine Market Observatory, 2024). The High Level Group on the wine sector which reported in December 2024 recognised that, in the light of these challenges, there was structural overcapacity in the EU market in some producing regions and in some market segments. It recommended the introduction of permanent grubbing-up schemes supported by national state aid financing. It is clear that 25% tariffs on the exports of EU wines to the US will only exacerbate these problems of market imbalance.
Conclusions
The introduction of across-the-board additional tariffs of 25% on most EU exports to the US will cause economic damage to the EU. For the agri-food sector, this will go beyond the direct consequences for access to the US market. The tariffs might well throw the EU economy into recession although I have yet to see any credible analysis of the likely economy-wide impacts of these 25% tariffs. Thus, there will be indirect impacts on domestic consumption as well as on export demand in non-US markets as the global economy contracts in response both to the initial US tariffs and any retaliation by other countries.
EU retaliation by increasing tariffs on US imports will be intended to persuade the US administration that its increased tariffs are not worth the candle and should be rescinded. The European Commission seems determined to go down this route, although I do not see much likelihood of changing the US position in the short term. In that context, it will be important to target tariff retaliation to minimise any self-inflicted damage on the EU economy.
Nor will retaliation provide much in the way of relief to those agri-food sectors likely to be particularly affected by US tariffs. While recent high export prices for olive oil suggest some scope to absorb the tariffs and maintain market access, this option is not likely to be available for exporters of wine, spirits, dairy, pasta and processed fruits and vegetables. Where products have a particular brand recognition and thus some market power, it may be possible to pass on the additional tariff cost in higher prices which still maintaining export volumes. For example, this was the case for Irish butter exports sold under the Kerrygold brand name in the US which was targeted by additional 25% tariffs imposed on certain EU exports in 2019 and continued until the middle of 2021 as part of the Boeing-Airbus dispute. Despite the additional tariff (which doubled the out-of-quota tariff on butter imports into the US) Irish butter exports continued to increase in volume over this period. It will be essential to monitor market developments through the various commodity Market Observatories and to stand ready to take remedial action as required.
This post was written by Alan Matthews.
Update 27 February. Information on the tariffs applied to Canada, Mexico and China has been updated based on this CNBC news item. Information on Irish butter exports to the US following imposition of tariffs in 2019 added in the final paragraph.
Picture credit: © Marcel Crozet / ILO and licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 IGO License.
