Trump Tariff Threat Over Digital Policy Rattling EU

"As the President of the United States, I will stand up to Countries that attack our incredible American Tech Companies. Digital Taxes, Digital Services Legislation, and Digital Markets Regulations are all designed to harm, or discriminate against, American Technology," he wrote at 8:30 p.m. Aug. 25. "They also, outrageously, give a complete pass to China's largest Tech Companies. This must end, and end NOW! With this TRUTH, I put all Countries with Digital Taxes, Legislation, Rules, or Regulations, on notice that unless these discriminatory actions are removed, I, as President of the United States, will impose substantial additional Tariffs on that Country's Exports to the U.S.A., and institute Export restrictions on our Highly Protected Technology and Chips. America, and American Technology Companies, are neither the “piggy bank” nor the “doormat” of the World any longer. Show respect to America and our amazing Tech Companies or, consider the consequences!"

In Brussels, journalists asked European Commission representatives, given that predictability and stability "is already out the window, what is the reason to still stick to the agreement and to still reduce tariffs unilaterally?"

EU spokesperson Paula Pinho disagreed with the premise, and said the framework, which promises all-inclusive 15% tariffs on European exports except for steel and aluminum, "has provided for predictability and stability."

She said the commission still intends to consider legislation this week to eliminate Europe's industrial goods tariffs for U.S. exporters.

The U.S. promised that once the legislation were introduced, it would retroactively change 232 auto tariff rates from most favored nation plus 25% to 15% all-inclusive.

Jacob Funk Kirkegaard, a senior fellow at the Brussels economics think tank Bruegel, and a nonresident fellow at the Peterson Institute for International Economics, said in a phone interview Aug. 26 that EU politicians had known Trump was mercurial, but they had hoped the trade truce would last longer than a week.

He said commission officials would present the tariff-reducing legislation to the EU parliament, and they made sure to keep the Digital Markets Act and Digital Services Act out of the framework, because touching those laws "would have jeopardized an expedited process" in parliament.

"They will not be happy Trump has expedited the unraveling of the deal," he said dryly.

Penny Naas, acting senior vice president for innovation and competitiveness at the German Marshall Fund of the United States, said in a phone interview that there was "always going to be the risk with Trump ... nothing’s ever completely closed, and you have to know that things can be renegotiated."

Naas said that Trump's complaints about digital policy are not new -- they were a subject of an executive order in February -- but the Aug. 25 post is a reminder to the Europeans that the president can pull the trade deal "at any time."

She said she assumes "somebody got to the president on Monday, [saying], 'Hey we’re not happy you didn’t get our stuff in the deal.'"

Kirkegaard said, "I think it’s very obvious that the EU clearly thought that Donald Trump was the type of someone for whom a deal has some sort of value."

He said it was fiction "that this deal provided any kind of long-term stability. That’s not possible when you're dealing with Donald Trump," because everything is a continuing negotiation for Trump.

"They’re going to have to put a brave face on that," he said.

"Even with what Trump said [online], they can still say we have garnered tariff stability," he said.

"Of course, if it turns out he puts tariffs on the EU auto sector," which particularly benefits from going from 27.5% or 29% to 15%, "then that line of defense also crumbles.

However, Kirkegaard said he thinks the EU will continue to hold its retaliatory fire, because tariff stability is not really why the EU settled the trade war.

Rather, member states -- five of which border Russia -- "really didn't give them any choice," because they need U.S. weapons, intelligence and diplomatic support to help Ukraine continue to hold out against Russian aggression.

He said until the situation on the battlefield is more advantageous to Ukraine, the EU is unlikely to retaliate -- even if Trump reneges on promised tariff reductions or exemptions.

He said the commission will then make the argument that some of the tariffs were levied under a law that may be found unconstitutional anyway.

"The commission is stuck between a rock and a hard place. They had to do this deal. They tried to sell it, but obviously, Trump is Trump."

Kirkegaard said, despite public grandstanding by Bernd Lange, the head of the EU parliament's trade committee, the law reducing EU tariffs for U.S. exporters will pass.

"At the end of the day, Parliament understands the security logic as well," he said. "Is the European Parliament going to torpedo a deal that member states have essentially forced on the EU? No."

Kirkegaard noted that Lange is from Germany, and the "German auto industry one of the primary beneficiaries of this deal."

Additionally, Kirkegaard said, "You haven’t seen any head of government [in Europe] come out and blast this deal."

He said the trip to Washington by EU Commission President Ursula von der Leyen, and the leaders of Germany, France, Italy and Finland (as well as the head of NATO and the U.K.'s prime minister) reconfirmed why the EU made this deal.

"It’s part of Trump management, if you like. Because it is increasingly widely acknowledged, this is all an exercise in Trump management." He said this latest post "just shows everyone how difficult that is."

The EU spokespeople defended the Digital Markets Act and Digital Services Act, saying the idea that they discriminate against U.S. tech firms is false.

"It is the sovereign right of the EU and its member states to regulate economic activities on our territory, which are consistent with our democratic values," said Pinho. "This is also why this was not part of our recent agreement with the U.S."

Naas said, "The points the president made about discrimination against U.S. companies is a point tech companies have been making," but it's not true -- the EU has used these laws against Chinese firms, too.

EU Official Thomas Regnier said in the briefing in Brussels that the last three enforcement actions the EU took were against AliExpress, Temu and TikTok.

Naas said she didn't think the EU would back away from its regulatory approach wholesale but would have to be careful "if they want to avoid him revoking the deal and putting the tariffs back into place. They can see what’s happening to India."

She said whether Trump follows through with his tariff threats will depend on how much existing tariffs start to bite in Southern manufacturing powerhouses like South Carolina and Alabama, given the inputs U.S. factories import from Europe.

"We’ll continue to see how it shakes out," she said. "There's clearly a chance of everything falling apart in the next nine months."

But, she said, she thinks a collapse of the trade deal would still be one-sided -- she doesn't expect the EU to retaliate as long as the German economy is slowing and the Ukraine war is still going on.

"It seems to me the Europeans made their bed. Now they’ve got to lie in it," Naas said, even if a bunch more lumps are added to that bed.

Kirkegaard said it will be interesting to watch what Poland and Germany do in terms of passing a digital services tax in 2026. He said the EU could use the anti-coercion instrument if the U.S. tried to punish those countries for DSTs, even if the U.S. uses punishments other than tariffs, such as refusing to sell military equipment in the previously agreed-upon quantity or speed.

But he doesn't believe such an action would come in 2026. "Particularly because of Ukraine, the commission is going to want to play for time."