EU Prepares Retaliation Plan in Case of No Deal with the U.S.

European Union (EU) envoys are expected to meet later this week to finalize a set of measures in response to a possible no-deal scenario with U.S. President Donald Trump, whose stance on tariff negotiations appears to have hardened ahead of the August 1 deadline.

The overwhelming preference is to keep negotiations with Washington ongoing in an attempt to resolve the deadlock before the current deadline. However, the efforts have so far failed to yield sustained progress following last week’s talks in Washington, according to people familiar with the matter. Negotiations will continue over the next two weeks.

The U.S. now appears to be seeking an almost universal tariff on EU goods of more than 10%, with only a few exemptions—limited to aviation, some medical devices and generic drugs, various distilled spirits, and a specific set of manufacturing equipment needed by the U.S., the sources said, speaking on condition of anonymity.

A spokesperson for the European Commission, which handles trade issues for the bloc, said it had no comment on the ongoing negotiations.

The two sides have also discussed a possible cap for specific sectors, as well as quotas for steel and aluminum, and a method to isolate supply chains from sources that oversupply these metals, the sources said. They cautioned that even if a deal is reached, it would still require Trump’s approval—and his position remains unclear.

“I’m confident we’ll strike a deal,” said U.S. Commerce Secretary Howard Lutnick in an interview with CBS yesterday. “I believe all these key countries will realize that it’s better to open their markets to the United States than pay a significant tariff.”

Lutnick added that he had spoken with European trade negotiators that morning.

The U.S. president wrote to the EU earlier this month, warning that the bloc would face a 30% tariff on most of its exports starting August 1. In addition to a blanket tariff, Trump imposed a 25% duty on cars and auto parts, as well as a 50% duty on steel and aluminum. He also threatened to impose new tariffs on pharmaceuticals and semiconductors as early as next month and recently announced a 50% tariff on copper. In total, the EU estimates that U.S. tariffs now cover €380 billion ($442 billion), or about 70% of its exports to the U.S.

The EU has been seeking broader exemptions than those offered by the U.S., as well as protection from future sectoral tariffs. While it has long been accepted that any agreement will be asymmetric in favor of the U.S., the EU will assess the overall imbalance of any deal before deciding whether to trigger rebalancing measures, Bloomberg previously reported. The level of asymmetry that member states are willing to tolerate varies, with some open to higher tariffs if sufficient exemptions are secured. Any deal would also address non-tariff barriers, cooperation on economic security issues, and consultations on digital trade, as well as strategic procurement.

Source: Valor Econômico

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