Australia Urged to Heed Warning Amid EU Trade Tensions with Trump

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United States President Donald Trump could land in hot water over his latest tariff threats, with experts saying his planned import taxes could backfire or drag other countries into painful trade stoushes.

He has threatened to “100 per cent” follow through on his threats, as the EU leaders plan to discuss their options at an emergency summit in Brussels on Thursday.

One option is a package of tariffs on 93 billion euros ($161 billion) of US imports that could automatically kick in on February 6 after a six-month suspension.

German Chancellor Friedrich Merz said he would try to meet with Trump on Wednesday adding that a trade dispute was not wanted.

Friedrich Merz has issued a firm warning, stating that if faced with tariffs deemed unreasonable, Europe is prepared to retaliate. “We’re ready to respond if necessary,” he remarked.

Tim Harcourt, chief economist at the University of Technology Sydney, told SBS News Trump is using the threat of tariffs as an economic bargaining chip in his push to acquire Greenland, a sovereign territory of Denmark.

However, Trump might get more than he wagered for, with experts saying Europe could make good on a proposal to retaliate with its own aggressive economic measures against the US, which would have wide-reaching consequences.

Stock markets in Australia and the US have taken a dip after the latest tariff threats.

AMP chief economist Shane Oliver said this shows Australians should take the threatened tariffs seriously as Europe and the US are big export partners with each other.

This could impact markets across the globe and cause share prices to fall for Australian investors, he said.

“There are worries that there’ll be a new trade with Europe but it’s perhaps not as severe as it was back in April,” he said.

“We should take it seriously”.

“I suspect we’ll continue to see a knee-jerk negative reaction, but I suspect it will be smaller than what we saw last year,” he said, referencing Trump’s so-called ‘Liberation Day’ tariffs.

In April, the tariffs targeted almost every country in the world with a 10 per cent baseline US tariff on imported goods, which Australia was exempt from.

Trump’s threat means that EU tariffs, already at 15 per cent, could rise an additional 10 per cent, and a further 25 per cent if a deal is not reached in June, according to the Atlantic Council.

Harcourt said that the tariffs are unlikely to impact Australia directly but could hamper international trade.

Merz noted that while trade with these specific countries isn’t as extensive as with Asia, any retaliatory measures could still significantly impact the global economy. “The potential for global economic disruption is real,” he pointed out.

He further emphasized the broader economic implications, stating, “Such actions would be detrimental to both European and American economies.”

While European countries have been reluctant to place reciprocal tariffs on the US in the past, that could now be changing.

French media are reporting that France’s President Emmanuel Macron is calling on leaders to activate the European Union’s anti-coercion measures.

The anti-coercion law, which has never been used, would enable the bloc to impose punitive economic measures on a country seeking to force policy change.

Rasmus Søndergaard, a senior researcher at the Danish Institute for International Studies, says it may be Europe’s best option to deter Trump.

This could look like tariffs directed back at Trump and his allies.

“The EU has the ability to really strike back with force if they want to,” he said.

If the United States persists in threatening Europe with sanctions, there is a risk that the affected nations may choose to reduce their investments in U.S. stocks, potentially causing economic difficulties for America.

According to Deutsche Bank data, European countries own US$8 trillion ($11.9 trillion) worth of US bonds and equities, more than double any other investor.

Moreover, a trade conflict between the U.S. and the EU could not only weaken their own economies but also erode global market confidence. This escalation in tariffs could have far-reaching consequences on international economic stability.

Tariffs could backfire

Betashares chief economist David Bassanese said the EU is a major trading partner with the US, and that tariffs towards its members could “ultimately backfire” for Trump.

“Further large tariffs on major trading partners would only add to the risks facing the US economy — especially if Europe finally responds with trade retaliation of its own,” he said.

“If Trump is ultimately forced to back down without getting Greenland, it could once again expose many of these threats as hollow, undermining all future negotiations.”

Not only could escalating tariffs between the US and EU weaken their respective economies, it could also undermine confidence in global markets.

Oliver said that Trump would be reluctant to make good on the tariff threats, and would likely back down before the deadline and “cut a deal”, due to how unpopular tariffs are for US voters.

“He was elected on the basis of reducing the cost of living, but his tariffs added to it. And so therefore he’s under pressure to reduce the cost of living,” he said.

“Trump wants to win elections. He doesn’t want to go into what would become a new trade war.”