The European Union should join forces with other countries targeted by US tariffs to retaliate against President Donald Trump’s “hostage-taking” tactics, a former director general of the World Trade Organization warned this week, cautioning the bloc against treating ongoing talks with Washington as conventional trade negotiations.
“The real rebalancing of this hostage-taking game…would be a strong coalition of the 80% of the US trade partners,” Pascal Lamy, who led the WTO from 2005 to 2013 and previously served as the European Commissioner for trade, told The Parliament in an interview Tuesday.
Such a coalition could be comprised of the EU, China, Indonesia, India, South Africa, Japan, South Korea and other countries. “That would be a very strong alliance,” said Lamy, who currently serves as the vice-president of the Paris Peace Forum and president of the European branch of the consultancy Brunswick Group.
Lamy’s plea to stage a coordinated response to the US with other WTO members comes after Trump’s threat earlier this month to impose a crippling 30% baseline tariff on EU goods — even as Brussels and Washington were mired in negotiations to reach a trade deal ahead of a US-imposed 1 August deadline. The EU — America's largest trading partner — is already grappling with a 10% baseline rate on all exports to the US, along with a 50% levy on European steel and aluminium, and a 25% tax on car sales.
“My guess is that Trump does not consider this as a negotiation and that he will shoot as he said he would,” Lamy said of the president’s 30% menace.
As of late Wednesday, the EU and US were reportedly nearing a deal that would set a 15% baseline tariff on European exports, in the same vein as the agreement Trump reached with Japan earlier in the week.
Less than three months after returning to office, on what he dubbed “Liberation Day,” Trump unleashed sweeping tariffs on over 180 trading partners, including the European Union, contending they would help balance out a $773.4 billion US trade deficit. Tariffs, the president has argued, will reshape a global trade system that’s “ripped off” the US.
From trade appeasement to retaliation?
The EU has finalised a first set of countermeasures to retaliate against the steel and aluminium tariffs, which would target roughly €21 billion in US exports to the bloc — but has repeatedly decided not to pull the trigger in a bid to avert a painful escalation of the trade conflict. European diplomats have also drafted a second set of retaliatory measures — taking aim at an additional €72 billion worth of US goods — and are now reportedly considering utilising the bloc’s powerful Anti-Coercion Instrument if a trade deal falls apart.
But for Lamy, only a broad international coalition would generate enough firepower to strike the US where it hurts most. Yet, so far, the appetite for a coordinated reprisal against the US has been limited — even within the 27-member bloc. “Unfortunately, the EU has not been particularly active in pursuing this path,” Lamy admitted, attributing the hesitation to the EU's fear of provoking Trump into a tit-for-tat escalation that could wreak havoc on Europe’s highly export-dependent economy.
In a clear sign that the EU is prepared to pivot away from a trade regime centred around the US, European Commission President Ursula von der Leyen announced last month that Brussels was considering joining the Asian-led Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). That could be a first step towards gradually replacing the WTO, whose authority has waned over the last decade amid increasing fragmentation in global trade.
Still, Lamy dismissed the idea. “The notion that the EU and China will join the CPTPP and that this will replace the WTO is, in my view, an extremely long shot,” he said.
For months, the EU has chosen to de-escalate at any cost. It’s a posture that has drawn accusations of appeasement, but one that Brussels has repeatedly defended as the best way to avoid being dragged into a spiralling trade war.
According to Lamy, however, that strategy is only effective if the EU and US are engaged in genuine trade negotiations. “The big question is whether this is or not a negotiation,” the expert said, noting that talks have so far resembled more "blackmail" given Trump’s ongoing threats.
And if Trump were to move forward with a 30% tariff rate, the choice is clear for Lamy.
“There’s no other option than retaliation,” he said.
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