Douglas Holtz-Eakin

President Donald Trump on Saturday announced he’s levying tariffs of 30% against the European Union and Mexico starting Aug. 1, a move that could cause massive upheaval between the United States and two of its biggest trade partners.

Trump detailed the planned tariffs in letters posted to his social media account. They are part of an announcement blitz by Trump of new tariffs with allies and foes alike, a bedrock of his 2024 campaign that he said would set the foundation for reviving a U.S. economy that he claims has been ripped off by other nations for decades.

In his letter to Mexico’s leader, President Claudia Sheinbaum, Trump acknowledged that the country has been helpful in stemming the flow of undocumented migrants and fentanyl into the United States. But he said the country has not done enough to stop North America from turning into a “Narco-Trafficking Playground.”

“Mexico has been helping me secure the border, BUT, what Mexico has done, is not enough,” Trump added.

Trump in his letter to the European Union said that the U.S. trade deficit was a national security threat.

“We have had years to discuss our Trading Relationship with The European Union, and we have concluded we must move away from these long-term, large, and persistent, Trade Deficits, engendered by your Tariff, and Non-Tariff, Policies, and Trade Barriers,” Trump wrote in the letter to the EU. “Our relationship has been, unfortunately, far from Reciprocal.”

The letters come in the midst of an on-and-off Trump threat to impose tariffs on countries and right an imbalance in trade. Trump in April imposed tariffs on dozens of countries, before pausing them for 90 days to negotiate individual deals. As the three-month grace period ended this week, Trump began sending his tariff letters to leaders but again has pushed back the implementation day for what he says will be just a few more weeks.

If he moves forward with the tariffs, it could have ramifications for nearly every aspect of the global economy.

EU members and Mexico respond

European Union Commission President Ursula von der Leyen responded by noting the bloc’s “commitment to dialogue, stability, and a constructive transatlantic partnership.”

“At the same time, we will take all necessary steps to safeguard EU interests, including the adoption of proportionate countermeasures if required,” von der Leyen said in a statement.

Von der Leyen added that the EU remains committed to continuing negotiations with the U.S. and coming to an agreement before Aug. 1. Trade ministers from EU countries are scheduled to meet Monday to discuss trade relations with the U.S., as well as with China.

European leaders joined von der Leyen in urging Trump to give negotiations more time and warnings of possible new tariffs on Washington.

“With European unity, it is more than ever up to the Commission to assert the Union’s determination to resolutely defend European interests,” French President Emmanuel Macron said in a statement posted on X.

Italian Premier Giorgia Meloni’s office said “it would make no sense to trigger a trade war between the two sides of the Atlantic.”

Danish Foreign Minister Lars Løkke Rasmussen told broadcaster DR that Trump was taking a “pointless and a very short-sighted approach.” Swedish Prime Minister Ulf Kristersson warned in an interview with SVT that “everyone loses out from an escalated trade conflict, and it will be U.S. consumers who pay the highest price.”

The Mexican government said it was informed during high-level talks with U.S. State Department officials Friday that the Trump letter was coming. The delegation told Trump officials at the meeting it disagreed with the decision and considered it “unfair treatment,” according to a Mexican government statement.

Trump, as he has in previous letters, warned that his administration would further raise tariffs if the EU attempts to hike its own tariffs on the United States.

With the reciprocal tariffs, Trump is effectively blowing up the rules governing world trade. For decades, the United States and most other countries abided by tariff rates set through a series of complex negotiations known as the Uruguay round. Countries could set their own tariffs, but under the “most favored nation’’ approach, they couldn’t charge one country more than they charged another.

The Mexico tariff, if it goes into effect, could replace the 25% tariffs on Mexican goods that do not comply with the existing U.S.-Mexico-Canada free trade agreement.

Trump’s letter did not address if USMCA-compliant goods would still be exempt from the Mexico tariffs after Aug. 1, as the White House said would be the case with Canada. Trump sent a letter to Canada earlier this week threatening a 35% tariff hike.

Higher tariffs had been suspended

With Saturday’s letters, Trump has now issued tariff conditions on 24 countries and the 27-member European Union.

European leaders had held out hope that they would avoid receiving a Trump tariff letter, and that a deal would be worked out. The European Union’s chief trade negotiator, Maroš Šefčovič, said earlier this week that a trade deal to avert higher tariffs on European goods imported to the U.S. could be reached “even in the coming days.”

The bloc collectively sells more to the U.S. than any other country. U.S. goods imports from the EU topped $553 billion in 2022, according to the Office of the U.S. Trade Representative.

Douglas Holtz-Eakin, a former Congressional Budget Office director and president of the center-right American Action Forum, said the letters were evidence that serious trade talks were not taking place over the past three months. He stressed that nations were instead talking amongst themselves about how to minimize their own exposure to the U.S. economy and Trump.

“They’re spending time talking to each other about what the future is going to look like, and we’re left out,” Holtz-Eakin said.

He added that Trump was using the letters to demand attention, but, “In the end, these are letters to other countries about taxes he’s going to levy on his citizens.”

Potential impact is vast

If the tariffs do indeed take effect, the potential impact on Europe could be vast.

The value of EU-U.S. trade in goods and services amounted to 1.7 trillion euros ($2 trillion) in 2024, or an average of 4.6 billion euros a day, according to EU statistics agency Eurostat.

Europe’s biggest exports to the U.S. were pharmaceuticals, cars, aircraft, chemicals, medical instruments and wine and spirits.

Lamberto Frescobaldi, president of the Union of Italian Wines trade association, said Trump’s move could lead to “a virtual embargo” of his country’s wine.

“A single letter was enough to write the darkest chapter in relations between two historic Western allies,” Frescobaldi said. “At this point, our fate and that of hundreds of thousands of jobs are tied to the extra time, which will be crucial, because it is unthinkable to be able to sell these volumes of wine elsewhere in the short term.”

Trump has complained about the EU’s 198 billion-euro trade surplus in goods, which shows Americans buy more goods from European businesses than the other way around.

However, American companies fill some of the gap by outselling the EU when it comes to services such as cloud computing, travel bookings, and legal and financial services.

The U.S. services surplus took the nation’s trade deficit with the EU down to 50 billion euros ($59 billion), which represents less than 3% of overall U.S.-EU trade.