A new transatlantic trade war? Trump's tariffs could push Europe to target American tech services!
Donald Trump's plan to impose new tariffs on the European Union could provoke retaliation in an unexpected way not by taxing American goods, but by targeting the dominance of American technology firms in Europe's digital economy.
The idea, outlined in a Goldman Sachs report released Monday, suggests that instead of responding with small tariffs on American exports, Brussels could exploit its growing trade deficit in services. By restricting American digital services, the EU could hit a sector that generates billions in revenue from European markets.
Trump vowed last Friday to impose “reciprocal tariffs” as soon as this week, stoking fears of a renewed transatlantic trade war. Goldman Sachs economists Giovanni Pierdomenico and Filippo Taddei said they now expect the US to raise tariffs on European car exports by 25 percentage points and impose a 10% tariff on a wide range of critical imports, from metals and minerals to pharmaceuticals.
The move, they estimate, could affect EU exports worth 190 billion euros, or about 40% of the bloc’s total shipments to the US. If tariffs are imposed, Goldman Sachs predicts the EU’s response will resemble the strategy it used in 2018, when Trump first targeted European steel and aluminium. At that time, Brussels retaliated with duties on key US products, including bourbon whiskey and motorcycles, covering about 40% of the EU’s affected exports.
A second round of tariffs was prepared but never implemented, pending a World Trade Organization ruling. This time, the EU is likely to tread carefully again. “We expect the EU to favor a de-escalation of trade tensions as much as possible and to use strong retaliation only as a last resort,” the economists said.
Unlike in 2018, however, the EU now has an additional tool at its disposal: the Anti-Coercion Instrument (ACI), a mechanism designed to counter economic pressure from third countries. The ACI, which gives Brussels the authority to impose tariffs and restrict access to European markets in response to coercive trade measures, could provide a framework for action against Washington.
One area that could be examined is the digital economy. While the EU enjoys a sizeable trade surplus in goods with the US, it has an annual trade deficit of around €150 billion in services, half its goods surplus. A key factor in this imbalance is the dominance of US technology companies. These firms generate significant revenues from European clients and repatriate profits as royalties through low-tax jurisdictions such as Ireland.
Goldman Sachs economists suggest that targeting this sector could be a way for Brussels to back off without resorting to a tariff war on physical goods. “Services imported into the EU from the US span a range of sectors, including the financial sector, but the lion’s share is IT services that are then billed as royalties channelled to the US from Ireland,” Goldman Sachs said, adding that any restrictions on these transactions could have a significant impact on the services trade balance.
Unlike traditional tariffs, which can be imposed quickly, any measure under the ACI would require approval from at least 15 of the EU's 27 member states, a process that could slow Europe's response. For now, Europe is closely watching Trump's next move.
If he follows through on his promise of new tariffs, Brussels will have to decide between direct retaliation against American goods or a more strategic approach—an approach that could put the American tech sector on the cusp of a trade war it has largely avoided so far.
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