Introduction
The trade war initiated by U.S. President Donald Trump bears little resemblance to the Falklands War waged by British Prime Minister Margaret Thatcher in 1982. In the former, one party deploys a massive force while the other retreats timidly. However, in Trump’s trade war, many countries have remained indifferent, despite expectations of eye-for-an-eye retaliation.
The Trade War: A Weak EU Response
Out of the 57 countries and territories included in Trump’s “Day of Liberation” list of tariff targets, only Brazil, Canada, and China have threatened retaliation against the U.S. The remote Heard and McDonald Islands, inhabited solely by penguins, have understandably remained unaffected. Surprisingly, numerous other countries have shown no response to the U.S.’s aggression, given the anticipated cycle of retaliation.
The European Union’s agreement with the U.S. is particularly noteworthy. The EU has accepted Trump’s 15% base tariff, with exemptions only for aircraft parts, critical minerals, and a few other items. The U.S. tariffs on steel, copper, and aluminum remain at 50%. EU Commission President Ursula von der Leyen has pledged that Europe will buy more U.S. energy and invest $600 billion in the U.S., though it’s debatable if these commitments fall under the EU Commission’s purview.
The Trump administration further claims that Europe will import more agricultural products and relax its digital trade restrictions. In return, the EU receives minimal concessions—just a promise from the U.S. not to impose even higher tariffs, for now. Meanwhile, this deal enhances U.S. exporters’ access to European markets while imposing additional barriers on European exports in the U.S.
Von der Leyen hails this agreement for ending prolonged trade uncertainty, though the duration of this newfound certainty remains uncertain.
EU’s Weakness: A Deeper Look
The agreement is widely viewed as a sign of the EU’s weakness, with considerable grounds for this opinion. The Commission had to negotiate on behalf of 27 countries with differing stances on how aggressively Europe should respond. In France, there was significant support for confronting an aggressor. Conversely, in Germany, the automotive and machinery industries, desperate to maintain access to the U.S. market under at least favorable terms compared to Japan, South Korea, and the U.K., shaped policy.
Moreover, the EU still relies on the U.S. for armament and seeks to strengthen its defense and geopolitical capabilities independently. However, substantial progress in this direction will take years.
The EU also lacks a lever analogous to China’s control over rare earth refining, enabling the Chinese government to threaten selective retaliation by cutting off essential inputs required by U.S. high-tech industries and the country’s defense complex.
Lastly, like other economies grappling with a response, the EU faces an issue of “madness.” Normally, the strongest argument for retaliation is to deter further aggression. A rational leader would understand that initiating a trade war, like starting a conventional war, would provoke a counterattack causing mutual harm.
However, this strategy works only when leaders are rational. Trump’s trade policy decisions are evidently guided by an irrational belief in tariffs—”the most beautiful word in the dictionary,” as he puts it—and the perverse satisfaction of punishing opponents and allies alike, regardless of U.S. costs.
Alternative Perspective: EU’s Strength
Contrarily, some argue that the EU has displayed strength rather than weakness in its response to Trump’s trade war. Responding to tariffs with tariffs, especially when they lack deterrence, is merely a way to economically harm oneself. Increased import prices fuel inflation and hurt consumers, while taxing imported inputs, as the U.S. does, raises production costs and reduces national efficiency.
Moreover, reduced import competition encourages rent-seeking: domestic producers will push for tariff concessions and make campaign contributions to secure them.
Thus, the EU has shown wisdom in avoiding self-destructive measures. It should now solidify this by ratifying its free trade agreement with the Mercosur bloc, strengthening ties with China, and reaffirming its commitment to the multilateral trading system, regardless of U.S. participation.
Commonalities: Distraction from Internal Issues
Both Thatcher’s Falklands War and Trump’s trade war serve to divert attention from their instigators’ internal problems: Thatcher’s unemployment crisis and Trump’s questions about his ties to convicted pedophile Jeffrey Epstein, who died while awaiting federal trial for sex trafficking.
With the help of his South Atlantic victory, Thatcher ruled for eight more years. The U.S. Constitution, however, prevents Trump from presiding until 2033—or so we’re led to believe.
About the Author
Barry Eichengreen
Barry Eichengreen is a Professor of Economics and Political Science at the University of California, Berkeley. He is the author of, most recently, “In Defense of Public Debt” (Oxford University Press, 2021).
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Project Syndicate, 1995 – 2025
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