The European Union has a “strong plan” to retaliate against tariffs imposed, and set to be imposed, by US President Donald Trump, although it would prefer to negotiate a solution, EU executive chief Ursula von der Leyen said yesterday.
The Trump administration put in place tariffs on imported steel and aluminium in March and higher duties on cars will take effect tomorrow. Trump will also set out plans for “reciprocal tariffs” today.
Von der Leyen said she understood US arguments that others had taken advantage of global trade rules, adding the EU had suffered too. She also said she understood the US wanted to re-industrialise, as does the EU.
However, she said US tariffs were taxes on its consumers that would fuel inflation and make American factories pay more for components, costing jobs.
“Our objective is a negotiated solution. But of course, if need be, we will protect our interests, our people, and our companies,” von der Leyen said in a speech to the European Parliament in Strasbourg.
“We do not necessarily want to retaliate. But if it is necessary, we have a strong plan to retaliate and we will use it.”
Von der Leyen also said the EU should diversify its trade and remove internal barriers to cross-border business in its single market.
She said the International Monetary Fund had estimated that Europe’s internal market barriers were equivalent to a 45 per cent tariff for manufacturing and 110pc for services.
She told EU legislators that the Commission would come up with proposals next month to remove some barriers and prevent new ones.
British Prime Minister Keir Starmer yesterday said talks with the US on a trade deal that would help Britain avoid being hit by Trump’s import tariffs were “well advanced”.
“We are discussing economic deals,” Starmer told Sky News. “These would normally take months or years, and in a matter of weeks, we’ve got well advanced in those discussions.”
Factories around the world, from Japan to Britain to the US, saw activity slump in March as businesses braced for new US tariffs, though some saw a bounce in the race to get goods to customers before the new measures hit, global surveys showed yesterday.
Trump has said no nation will be spared tariffs that policymakers fear will be the latest blow to a global economy barely just recovered from the Covid pandemic and beset by concerns over political instability and wars.
Asia’s factory activity mostly weakened in March as the impending tariffs, plus weak global demand, hurt business sentiment, Purchasing Managers’ Index surveys – a closely-watched gauge of economic sentiment – showed.
Japan’s factory activity fell at the fastest pace in a year, while South Korea’s decline in factory activity also sped up and the Taiwanese read-out was weaker as well.
China was one outlier, showing activity in the world’s second-largest economy picking up as factories rushed to get goods to customers before US tariffs took effect.
And in the US itself, where factory activity had expanded in the first two months of the year, manufacturing shrank, with the Institute for Supply Management (ISM) manufacturing PMI slipping to 49.0 from 50.3 in February. A PMI reading below 50 indicates contraction. A sub-index for new orders fell to its lowest since May 2023.
Julian Evans-Pritchard, an economist at Capital Economics, said the results suggested China’s industry was benefiting from “tariff front-running”, but added: “It won’t be long before US tariffs turn from being a tailwind to being a drag, however.”
The front-loading of activity was also cited as a possible factor behind a bounce in Europe’s long-suffering manufacturing industry, where output rose for the first time in two years, the PMI for the 20-country euro zone showed.
“A significant part of this movement may have to do with the front-loading of orders from the US ahead of the tariffs, which means some backlash is to be expected in the coming months,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
Germany, Europe’s largest economy, saw its first production increase in nearly two years, while the downturn eased in France. But British manufacturers endured a torrid March as the tariff threat and impending tax increases contributed to a plunge in new orders and ebbing optimism.
Investors remain nervous, but global stocks rose yesterday following Wall Street’s overnight gains, while gold hit an all-time peak. Yet other indicators on Tuesday showed weakness, with South Korea’s exports growing more slowly than expected and Japan’s closely watched tankan survey showing big manufacturers’ business sentiment hitting a one-year low.
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