EU/US Trade: Takeaways for Companies Amid Turbulent Tariff Policy

On July 11, 2025, the US administration threatened increased duties of 30% on products from the European Union and Mexico, two of the United States’ biggest trading partners—EU and Mexican exports combined accounted for around one-third of US imports in 2024. These measures are due to enter into force on August 1 absent any last-minute negotiations. Businesses will need to be strategic in planning for an even more challenging and unpredictable trading environment.

BACKGROUND

In addition to Sectoral Tariffs, [1] in early April 2025 the administration imposed a blanket 20% levy on all goods from the EU. A few days later, the United States paused these measures for 90 days until July 9, which pause has now been extended to August 1 in order to provide the EU a chance to negotiate to accommodate US trade concerns. If a deal is not negotiated, the newly threatened measures would raise the tariff rate for EU goods from 20% to 30%.

WHICH EU INDUSTRIES ARE MOST AFFECTED

Given that the United States is the EU’s largest export market for numerous goods, 30% US tariffs on EU exports would significantly impact transatlantic supply chains, to the detriment of businesses and final consumers on both sides of the Atlantic. In 2024, the United States imported $605 billion worth of goods from the EU.

The US market is especially key for Germany, Ireland, Italy, France, the Netherlands, and Belgium. [2] Among the most affected EU industries are pharmaceuticals and medicinal products, automotive and machinery, consumer goods (especially alcohol), and luxury items.

The European Commission and EU member states are still considering the best course of action to adopt in the currently unpredictable circumstances. France, in particular, is pushing for a tough response.

POSSIBLE EU RESPONSE AND US INDUSTRIES LIKELY MOST AFFECTED

EC President Ursula von der Leyen declared that the EU remains ready to negotiate a solution with the United States by August 1. At the same time, she stated that the EU will take “all necessary steps to safeguard EU interests, including the adoption of proportionate countermeasures if required.”

Despite the EU’s decision to extend the suspension of countermeasures until early August 2025 to allow for a negotiated solution, EU trade ministers continued to prepare an EU retaliation package. The EU has identified $84 billion of US goods that could be targeted.

These include industrial goods, planes and US-built vehicles, machinery products, chemicals and plastics, medical devices, electrical equipment, wines and several agrifood products. The broad package would also include toys and hobby equipment, sports guns, and musical instruments.

The EU has several unexploited retaliatory legal options in reserve. While a formal World Trade Organization dispute remains a traditional but practically ineffective option, [3] the EU may invoke its new Anti-Coercion Instrument (the so-called “EU Trade Bazooka”). [4]

Originally primarily designed as a defense mechanism against China, this unprecedented and powerful trade policy tool allows the EU to counter any foreign economic pressure with a very broadly framed range of retaliatory measures beyond tariffs:

• Trade restrictions on goods and services (such as import/export bans or quotas)
• Limits on foreign direct investment
• Restrictions on market access (such as the right to participate in public procurement or the imposition of score adjustments on tenders, or the exclusion of goods, services, or suppliers)
• Restrictions on the protection of intellectual property rights or their commercial exploitation
• Financial services restrictions (such as restricting access to banking, financial services, and insurance markets for entities from the third country or suspending the application of financial services agreements with that country)
• Restrictions for chemicals or (phyto-)sanitary products (such as introduction or escalation of restrictions on placing goods covered by EU chemicals legislation on the EU market)

The EU will have to prove economic coercion on the part of the United States, namely that the tariffs are used “in order to prevent or obtain the cessation, modification or adoption of a particular act by the EU or a Member State,” such as the adoption of digital markets regulation instruments or taxes or antitrust fines. Any measures will require a qualified majority in favor of the appropriate measures to be adopted, [5] following a specific process and timetable.

So far, France has been one of the most vocal supporters of using the EU Trade Bazooka, while other member states have remained more wary of further escalation. The EU may also reevaluate proposals for a Digital Service Tax or taxing large companies (which would principally affect US Big Tech companies) or reconsider data-transfer agreements with the United States, which would have wide-ranging implications for US companies doing business with and in the EU.

HOW TO NAVIGATE YOUR BUSINESS DURING A TRADE CONFLICT

Companies should be implementing more robust and resilient operational practices for the immediate and longer terms:

Legal and Compliance Strategies

• Verify contracts with suppliers and customers, especially clauses addressing tariff risk, force majeure, and price adjustments.
• Reassess INCOTERMS and determine who bears customs risk (Delivered at Place/Delivered Duty Paid and Free on Board/Free Carrier).
• Consider shifting final assembly or necessary transformation steps to modify product origin.
• Monitor customs classification codes, as incorrect HTS/CN codes can affect duty exposure.
• Verify rights and obligations under potentially relevant international trade agreements that might include exemptions or the possibility for importers to apply for exemptions.
• Reassess pricing strategies to account for increased costs due to tariffs.

Supply Chain Planning

• Adapt supply chain strategies to ensure faster market responsiveness, cost reduction, and enhanced resilience. For example, supply chain localization could offer strategic advantages (an EU business might consider securing long-term contracts with domestic buyers). [6]
• Seek diversification of supplier networks and adoption of multi-sourcing to enhance continuity and cost efficiency.
• Identify and develop sales channels and customers in new markets.
• Engage with (EU) trade associations for additional leverage and coordination with policymakers, in particular where goods/services might be covered by the EU Trade Bazooka.

HOW WE CAN HELP

Morgan Lewis’s trade team lawyers are closely monitoring the developments in all relevant jurisdictions and are well suited to advise companies on these issues and help engage with stakeholders in their respective jurisdictions.

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