The aim must be to reach a negotiated solution with the US

US trade policy is currently undergoing a radical change. On April 2, Donald Trump announced that the US will impose extensive tariffs on the rest of the world.

The announcements from the US were not unexpected. The administration has been working for several months to investigate other countries’ tariffs and trade barriers, and Trump has repeatedly mentioned reciprocal tariffs. He has expressed that the US is being treated unfairly by other countries that have higher tariffs and more non trade barriers than the Unites States However, the tariffs announced on the 2 April were both high and broad. On most goods, the US tariff levels are between zero and a few percent, so the change will be truly significant.

An additional “baseline tariff” of 10 percent was introduced on April 5th on imports from almost all countries. In principle, all goods are covered, with a few exceptions. For steel and aluminum products, as well as for automotives and automotive parts, the tariffs previously announced at 25 percent will be applied. In addition, the US announced even higher reciprocal tariffs on some countries, including the EU, based on the US trade deficit with the specific country.. For the EU, the new additional tariff level would have been 20 percent. However, on the same day as the additional reciprocal tariff entered into force, the US decided to paus the same tariffs for 90 days. What this means is that the “baseline tariff” of 10 percent, the tariffs on cars and car parts, as well as the tariffs on steel and aluminium, are still in place.

The US tariff announcements ultimately change the terms of world trade and can have the potential of affecting the entire world economy. The tariffs are imposed on imports into the US, which means that it is the companies and the consumers in the US who will bear the cost. History clearly shows that tariffs are negative for countries’ economies – they can lead to increased costs, risk driving up inflation and lead to reduced growth as productivity decreases.

The tariffs will also affect the EU and Sweden. The EU and the US have extensive trade relations with each other. For Sweden, the US is the third most important market for exporting goods. Increased tariffs can have a negative impact on exports from Sweden to the United States, but the direct effects will be different for industries and companies. There are also indirect effects, as Swedish companies are integrated in global markets, have establishments and production abroad, and the increased tariffs can disrupt companies’ global and regional production networks.

Above all, this situation creates great uncertainty for companies. The statements from the US in recent months have contributed to a general sense of unpredictability from the US administration. It is also difficult to know whether the last word has been said yet or whether the announced tariffs will be lowered or increased further because of negotiations or diplomatic conflicts between the US and other countries. We also do not know how the EU and other countries will respond to the US tariffs with countermeasures. And what is evident is that uncertainty in itself is negative for both trade and investment.

The European Commission has announced that the EU will respond with countermeasures if a negotiated solutions is not reached. From the business perspective, the goal must be to reach a negotiated solution with the US. One possibility is for the EU and the US to jointly lower tariffs on each other’s export. This has also been proposed by the EU, but has so far been rejected by the US.

Amidst this negative development, one positive consequence of the situation is that it has brought the EU countries together and we have realized the importance of strengthening our own competitiveness. It is important that the EU continues on this path and, among other things, facilitates trade in the EU’s internal market. It is also clear that the EU has chosen a different path than the US in its external endeavors. The EU is currently working to improve trade relations with other countries by negotiating free trade agreements with countries such as India, Indonesia and Thailand.

There are also a concluded FTA with the Mercosur countries in South America (namely Brazil, Argentina, Paraguay and Uruguay), which can create new business opportunities when it comes into force and give companies on both continents the opportunity to diversify. As the US changes course, the EU must continue to stand up for predictability and clarity, rules-based trade and well-functioning markets.

Ingrid Serup is a trade policy expert at the Confederation of Swedish Enterprise.