EU Retaliatory Measures Against the US: What Are Some Possible Impacts and Larger Geopolitical Consequences?

The tariff threats between the US and EU are escalating. The recent proposal by a European Union official to impose 93 billion euros ($107 USD) in retaliatory tariffs on US exports has several concerning implications for the US consumer and economy. Additionally, it raises concerns about the supply chain and potential long-term geopolitical consequences.

Economic models suggest that a full-scale trade war could lead to an approximate 0.1% to 0.2% increase in US inflation. Some data indicates that the combined impact of current and potential tariffs could push US inflation into the 3.8-4% range.

Furthermore, the actions of the Federal Reserve (Fed) will play a crucial role in this situation. It remains unclear whether the Fed will perceive the price increase as temporary. A prolonged trade war could compel the Fed to delay or even reverse rate cuts, resulting in higher interest rates for businesses and consumers.

Specific sectors are particularly vulnerable to the effects of EU tariffs. For instance, EU tariffs on €11 billion of US aircraft and parts could directly impact the interconnected relationship between firms like Boeing and Airbus. These companies share specialized suppliers such as Honeywell and Thales for critical flight systems. In the automotive sector, Germany, for example, which imported nearly €7.5 billion in US vehicles and parts in 2024, could face immediate cost-cutting pressures and production delays.

To mitigate the anticipated hikes, businesses often resort to “front-loading,” which strains logistics and can lead to storage challenges and inventory obsolescence. Additionally, trade flows may be diverted through third-party countries or non-targeted EU member states, such as Italy or Spain, creating less efficient and more expensive logistics routes.

Geopolitical considerations of the trade war extend beyond economic implications. One of the most discussed aspects is the potential end of NATO, which could result in the closure of US military bases in the UK and Germany. Furthermore, Brussels is considering the Anti-Coercion Instrument (ACI), which aims to go beyond tariffs by restricting American tech giants like Amazon and Microsoft from public contracts and limiting US investment in the EU.

European investors are increasingly drawn to safe-haven assets like gold as persistent trade instability encourages them to “rebalance” their portfolios away from the U.S. dollar, as trust in the dollar-based order wanes.

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CHRISTOPHER MCKEE, PHD CHIEF EXECUTIVE

Christopher McKee is PRS’ CEO and Owner. An international political economist, global investor, entrepreneur, and author, Chris received his PhD from Queen’s University (Canada) and has been involved in the field of geopolitical risk, limited recourse financing, and private sector development for the past 25 years.