President-elect Donald Trump intensified his rhetoric on trade Friday, warning the European Union that it must significantly reduce its trade deficit with the United States by purchasing more American oil and gas—or face tariffs.
“I told the European Union that it must make up its tremendous deficit with the United States by purchasing our oil and gas on a large scale. Otherwise, it will just be tariffs,” Trump posted on his Truth Social platform shortly after 1 p.m. ET.
The trade deficit between the U.S. and the EU in goods and services amounted to $131.3 billion in 2022, according to U.S. government data. While Trump’s remarks were consistent with his protectionist approach to trade policy, they sparked immediate reactions from EU officials.
“The EU and the US have deeply integrated economies, with overall balanced trade and investment,” said European Commission spokesperson Olof Gill in a statement to CNBC. “We stand ready to discuss with President-elect Trump how we can further strengthen an already strong relationship, including by discussing our common interests in the energy sector.”
Gill added that the EU remains committed to phasing out energy imports from Russia and diversifying its supply sources.
Energy ties and economic imbalance
The U.S. is the largest single market for EU exports, accounting for nearly 20% of the bloc’s exports. However, there is a significant trade gap in machinery and vehicles, where the U.S. recorded a deficit of €102 billion ($106 billion) in 2023. Conversely, the U.S. enjoys a trade surplus in energy and services, including a €70 billion energy trade surplus with the EU, fueled by growing American oil and gas exports.
The U.S. is the world’s top oil producer, contributing 22% of global supply in 2023, a figure expected to increase in 2024 under Trump’s deregulatory policies. The EU has already signaled its intent to purchase more American liquefied natural gas (LNG) as part of its strategy to replace Russian energy imports. Last month, European Commission President Ursula von der Leyen noted that U.S. energy imports could be a cost-effective alternative to Russian gas.
A senior EU diplomat, speaking anonymously to CNBC, said Trump’s comments were unsurprising and that energy is a “logical” area for the EU to expand trade with the U.S. German Chancellor Olaf Scholz reportedly discussed the issue with Trump in a phone call Thursday night.
Markets react cautiously
European stock markets fell sharply on Friday following Trump’s comments, while the euro strengthened 0.2% against the US dollar, reaching $1.038. The uncertainty surrounding Trump’s tariff threats contributed to market volatility as analysts weighed the potential economic impact of new tariffs on transatlantic trade.
EU braces for potential tariffs
Trump’s trade threats are consistent with his campaign rhetoric, which included promises of sweeping tariffs on trading partners such as China, Mexico, and Canada. He has proposed additional tariffs of 10% on Chinese imports and 25% on goods from Canada and Mexico, signaling a broader push for protectionist policies.
The EU, however, is preparing to respond. European Council President António Costa emphasized the EU’s willingness to engage constructively with the U.S.
“The message is clear: the European Union is committed to continuing to work with the United States, in a pragmatic way, to strengthen transatlantic ties,” Costa said after a meeting of EU heads of state on Thursday.
Yet some European leaders are warning against one-sided deals. Enrico Letta, former Italian prime minister and dean of the IE School of Politics, Economics, and Global Affairs, argued that the EU should adopt a firm stance.
“It’s a transactional approach. We have to respond to this transactional approach,” Letta told CNBC’s Squawk Box Europe. “Trump is mixing energy with tariffs on goods, manufacturing, and so on. I think it’s wrong because these issues are completely unrelated.”
Letta suggested that the EU could respond asymmetrically, potentially targeting the financial sector, where the U.S. has significant leverage.
Preparing for a protectionist shift
European officials have been preparing for months for a potential pivot toward American protectionism under a second Trump administration. The EU has also sought to strengthen ties with the United Kingdom, which left the bloc in 2020, as a hedge against potential trade and defense conflicts with the U.S.
While Trump’s rhetoric has raised concerns, analysts caution that his threats may be part of a negotiating strategy. The extent to which tariffs will be implemented remains uncertain, but the potential for a more adversarial U.S.-EU relationship looms as Trump prepares to take office in January 2025.
With both sides emphasizing their willingness to negotiate, the coming months will determine whether Trump’s hardline approach leads to deeper cooperation or escalating trade tensions.
