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Trump's "ultimatum" to Europe will raise tariffs if you don't buy oil and gas!
Time:2024-12-28

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On December 20, US President-elect Donald Trump issued tariff threats to the European Union, saying that the EU must make up for its huge trade surplus with the United States by buying large quantities of American oil and gas, or it will impose tariffs on the European Union.

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The imposition of a 10% tariff could reduce EU exports by 150 billion euros

German Chancellor Olaf Scholz recently said that 90% of Germany's liquefied natural gas (LNG) imports come from the United States. This high level of dependence reflects the close cooperation between Germany and the United States in the energy sector.


Back in the days of Trump's presidency in the United States, he repeatedly threatened to impose tariffs on imports from allies, including the European Union. The implementation of a 10% tariff is expected to reduce EU exports by around 150 billion euros per year. Despite the current post-Trump era, these rhetoric are still a reminder of the potential volatility of international trade policy and its impact on the economy.


The United States is now the world's largest producer of crude oil and exporter of liquefied natural gas. According to public data, in 2022, the U.S. trade deficit in goods and services with the EU reached $131.3 billion; And in 2023, the United States jumped to become the largest recipient of EU goods, accounting for 19.7% of its total exports. This shows the importance of the trade relationship between the United States and Europe and the dominance of the United States in the global energy market.


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EU: Prepared for potential tariff threats

From History to the Future: The EU's Response

In 2017, then-US President Donald Trump imposed tariffs on European steel and aluminium products on national security grounds, a move that caught the EU off guard. With lessons learned from the past, since Donald Trump won the election last month, EU officials and their member states have begun to actively prepare for a possible resurgence of trade offensives.


LNG supply relationship and energy transition

In the face of the Trump administration's tariff threat, multiple liquefied natural gas (LNG) buyers, including the European Union, have been in discussions with the United States about increasing fuel purchases. In fact, the U.S. is already Europe's largest LNG supplier, with more than half of U.S. LNG deliveries going to the continent last year. Earlier, the European Union has publicly stated that it will increase US energy imports in the coming years to replace dependence on Russian energy.


In November, European Commission President Ursula von der Leyen (Ursula von der Leyen) has publicly stated that replacing Russian LNG with US imports is not only more economical, but also in the strategic interests of the European Union. She noted that the EU plans to engage and negotiate on this issue when Trump takes office in 2025.


Analysts believe that Trump's conflation of energy trade with tariff policy seems a bit of a stretch, especially in the current context of global supply chain complications. Such an approach could disrupt the existing framework for energy cooperation and have a negative impact on the international trade order.


Former Italian Prime Minister Enrico Letta (Enrico Letta) stressed in an interview that the EU must be ready to respond to Trump's trade threats. "I think it's a way of trading and we have to respond to that. Trump is not right to lump together different topics such as energy, commodity tariffs, and manufacturing. He added: "If Trump's proposed agreement is an asymmetrical agreement on unrelated issues, we must act accordingly." ”


German Foreign Minister Annalena Baerbock (Annalena Baerbock expressed a similar sentiment after the G7 summit last month: "We are well prepared for the possible changes that may occur when the new US administration takes office." If the new U.S. administration continues to pursue an 'America First' policy on climate or trade, our response will be 'European solidarity.'" ”


03


Trump's tariff policy has caused many concerns and countermeasures

US President-elect Trump's policy of raising tariffs is causing widespread concern and concern, not only in the United States to cause consumer hoarding behavior and corporate supply chain adjustments, but also to internationally cause economists to assess the impact on the global economy.


According to CNN, some U.S. consumers, concerned that the upcoming tariffs will increase the cost of living, have begun stockpiling supplies to save money. At the same time, a number of major companies, including Microsoft and Dell, are revisiting and adjusting their global supply chains to mitigate the impact of potential tariffs. These sectors – particularly pharmaceutical, retail, and construction – are likely to face significant upward cost pressures due to their high dependence on global supply chains. If tariffs are extended to finished goods, they could exacerbate existing inflation problems and place a greater financial burden on consumers and businesses.


The Nihon Keizai Shimbun quoted research from the Japan Institute of Asian Economic Research as pointing out that Trump's tariff policy could have a negative impact on the U.S. and global economy. The study predicts that the U.S. gross domestic product (GDP) is expected to be pulled down by 1.1% by 2027 compared to the case without tariffs. The mining and agriculture sectors will be hit harder, with GDP expected to fall by 1.5% each. Shigeru Isono, a researcher at the institute, believes that high tariff policies are not only "self-inflicted" behavior, but may also inhibit the overall growth of the global economy. However, some analysts pointed out that Trump's tariff declaration may be to gain more leverage in trade negotiations with other countries, and it will not necessarily be fully implemented.


George Burry, chief investment strategist at Spiral Investment Management, said the exact impact of tariff policies is difficult to predict precisely because there is still uncertainty about how the Trump administration will implement them. While some see tariffs as just a bargaining chip in the negotiations, Borey warned that there is a real possibility that tariffs could be raised, which would lead to higher inflation and further push up costs for households and businesses.


U.S. Treasury Secretary Janet Yellen has also recently expressed concerns about tariff policy. She noted that if the new administration implements the tariff plan, it could undermine the progress that the United States has made so far in controlling inflation, weaken the competitiveness of certain areas of the economy, and significantly increase costs for American households and businesses. In addition, Yellen highlighted concerns about U.S. fiscal sustainability.


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