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A Conversation with Cecilia Malmström

You were Europe’s top trade official when the US under President Trump first imposed tariffs on the Union in 2018. He is expected to unleash a barrage of new tariffs on April 2. How does Trump II compare with Trump I?

This time it will be worse.

President Trump has always been fond of tariffs and his personality hasn’t changed. But the difference is that he has a very loyal group of people around him. Many of them have little experience in government or politics. Furthermore, he has a clear majority in both Chambers. 

He obviously doesn’t care about allies and doesn’t respect international organisations. Domestically, he has an agenda and he will not let anyone stop him from carrying it out, be it international partners, the courts or the media, Trump is behaving as if he has nothing to lose.

My view is that this time the tariffs will be bigger, higher and will affect the whole world. He has already reinstated global tariffs on steel and aluminium, he has announced tariffs on cars and car parts and on April 2, what he calls Liberation Day, I expect the United States to launch a massive round of what he calls reciprocal tariffs. Some 160 countries could be affected and the European Union is certainly a target. This is a moment of great uncertainty, but one thing we do know is that his view of reciprocal tariffs includes anything he considers unfair, from trade deficits to VAT.

He also sees the fact that we have higher tariffs on certain items as an attack on the United States – even though we apply similar criteria to other countries. He sees it as an attack in the same way that he sees our digital rules as unfair and designed to hurt the US.

There is also a more complex geopolitical scenario. For European countries, what happens to Ukraine and Greenland is of paramount importance. We see that the White House has a tendency to mix everything up. Are they part of the deal? We’re certainly not going to trade lower tariffs for Greenland.

The Trump administration also seems to have a deep-seated animosity towards the Union… 

Trump has said several times that the Union was created to “screw the US”, and my impression is that he believes this deeply. It’s not just a slogan. He despises international organisations, on top of the contempt he feels for certain countries. 

Vice President J.D. Vance expressed this hostility very openly at the Munich Security Conference. If you look at the messages published from the Signal chat in which he participated, it is clear that he has a personal disdain for Europe.  

The Trump world sees us as freeloaders, a group of people who don’t take themselves seriously and don’t pay their bills. For Europe, this is a brutal wake-up call.

Does that mean the transatlantic relation is over? 

There is a positive agenda that can still be built. We could sit down as adults for our mutual benefit. When it comes to China,  we could address their subsidy policy, violations of WTO rules, dumping and overcapacity together. We could also pursue a joint policy of diversification when it comes to critical minerals and make joint investments in other countries to reduce our dependencies on China. 

Unfortunately, the signals coming out of the White House do not point in that direction. Tariffs are important, but the most damaging thing for the transatlantic relationship is the rhetoric of the President of the United States.

On Ukraine, he has the same narrative as Putin. He humiliated Zelensky in front of the world. He has put the aggressor and the aggressed on the same level. This is what has broken the transatlantic relationship. Whether it’s severely damaged or dead remains to be seen. But it will take a long time to rebuild. Trust is non-existent. For our part, we must continue to defend Ukraine because it is one of us and it is defending our democracy.

Can the Union negotiate in good faith in this context?

My successor, Maros Sefcovic, is very experienced and has already been to Washington twice. I am sure he has put forward constructive measures. The Union is willing to talk, but there is a limit. 

We will have to respond — at least initially — with countermeasures to show that this behaviour won’t be tolerated. Canada has responded strongly and their approach is that they won’t be bullied, even though it puts the country in a very difficult position because they are much more dependent on the US as a trading partner and as a close neighbour.

For now, the European Union has delayed its counter-tariffs until mid-April. 

We have various tools, not only countermeasures, but also a powerful anti-coercion instrument. It’s important to remember that this is not just bad for Europe, the US will also be affected. European companies employ tens of thousands, if not hundreds of thousands, of Americans. 

A trade war will be painful for them too. 

We have to respond. That doesn’t mean we have to use the full artillery right from the start. We have the previous tariffs that were in place when I was Commissioner, they were suspended but they can be reinstated. The Commission has given itself two more weeks to consult —  it will come up with a list and it can choose to phase them in. But as things stand, we are going to have to be tough.

Would the use of anti-coercive measures against the United States be justified?

The Commission and its trade team have drawn up different scenarios depending on what the White House announces, including the use of the anti-coercion tool. Exactly when and how to use it, it’s too early to say, because while we know there will be more tariffs on 2 April, we don’t know exactly why and how. Nevertheless, I think the Commission will be ready to use it.

The problem with the anti-coercion instrument is that it has never been used before, so it will have to be drafted very carefully to make sure it is effective, but also to take into account the precedent it might set. I would have thought we would have used it against China first.

After all, this instrument was created as a result of the dispute between China and Lithuania, which was a form of political punishment by the Chinese through trade, so it is ironic that we are now discussing it in the context of the United States.

This is the reality we are facing. 

Some member states argued against escalation. Giorgia Meloni said the EU should not get into a spiral of counter-tariffs, arguing that the approach was childish. How important is it to remain united?

The situation is quite dramatic at the moment.

I can understand that Member States are worried, first of all, about their own economies and then, of course, about Europe. But we should be aware that if tariffs are announced on car parts, for example, it will also affect the Italian car industry.

All 27 countries will be affected. 

There is a clear interest in sticking together and formulating a common response. The Trump administration has bluntly said that it will target the EU as a whole. In the face of this threat, it is not credible for any one country to act alone. 

I don’t want to underestimate the impact of tariffs on the European economy, a trade war could hit Europe dramatically. Some members are willing to push in a more aggressive direction, while others have a different approach. This is understandable and part of the process that the Commission will have to assess. But a joint response is the best and most effective response.

The Trump administration is under the impression that it can take on a global trade war and emerge victorious. Can the US win a trade war against everyone, all at once?

The US is an important economic power, but it can’t go it alone. If you take something as basic as shoes, 85% of the production is outside the US. They’re not made in America, they’re made abroad. As far as I know, Americans need shoes. If you look at cars, there’s not a single American car that’s 100% made in the US. Not even Tesla.

This will affect American consumers. 

The administration also underestimates the reaction of the rest of the world. The European Union is negotiating new trade deals hard and fast. They are in advanced negotiations with Indonesia, they have reopened talks with Malaysia, they are working on a deal with India. Canada has also signalled that it wants to work much closer with Europe and strengthen its relationship with the Union. The impact of these moves may not be felt immediately, but it is important. 

The irony is that Trump may end up reviving the rules-based multilateral trading system – without the US, which would have been unthinkable before.

It could also have an impact on China. 

The Chinese are violating WTO rules and their subsidy policy is not fair play. But China is also defending the WTO as an institution. Its economy depends to a large extent on a well-functioning trading system. 

We could see an economic coalition of the willing to uphold the basic rules and standards that we have all agreed to and that have served the world so well, including the United States.

On China, we have seen a soft pivot from the Commission – from hawkish to more conciliatory. Spanish Prime Minister Pedro Sánchez will soon be in Beijing. Yet the Chinese have been pursuing an aggressive trade policy that is detrimental to Europe’s interests. Are we walking into a trap?

I don’t think we are walking into a trap.

We have a big economic relationship with China and 80 per cent of the trade we do with them is fairly benign. The de-risking is happening. The rhetoric may have died down, but the investigations into Chinese subsidies and unfair practices are still going on. There are 24 ongoing cases. That is significant action. We remain vigilant. 

If China is excluded from the US market, they will be tempted to dump their overcapacity here in Europe. We can’t allow that. At the same time, the Chinese don’t want a trade war with the US and Europe at the same time, so we should use this window to push them to reform and cooperate. 

Finally, we shouldn’t ignore that China is supporting Russia in various ways against Ukraine, prolonging the war. Anyone who directly or indirectly supports Russia against Ukraine is acting against Europe’s interests. I do not underestimate the importance of trade for Europe, millions of jobs and businesses depend on it, but the geopolitical implications are manifold.

Tariffs are one manifestation of a broken world order. What does this mean for the future of Europe?

It is going to be very bumpy. The world is in chaos and what is happening in the United States is nothing less than the erosion of democracy and fundamental rights. It is frightening. 

But it brings Europe closer together, and, in terms of security it brings the UK closer to the continent which is a good thing. 

When it comes to European construction, we have to get our act together. It will be difficult and expensive, but it is already happening. We have to be aware that external pressures are not going away, they are going to increase, and that means we have to be stronger internally. We need to promote structural reforms, competitiveness and innovation. We also have our assets. We have built a network of partners and allies, many of whom are puzzled by what is happening in the US. 

We have to use this window to strengthen our cooperation with more countries and diversify our trade dependence on the United States. Mercosur, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, India, Mexico, Indonesia, to name a few, these are all important relations for Europe and we have to keep fostering them. 

Finally, we can’t leave Ukraine alone. They are fighting for Europe. We have to understand that a bad deal for Ukraine is a bad deal for us.