US-EU Tariff Dispute and Structural Cracks in Transatlantic Trade Relations: Scenario-Based Risk Analysis and Response Strategies

Executive Summary

The US-EU trade dispute has evolved beyond a simple tariff conflict into a complex crisis characterized by the simultaneous deepening of structural cracks in digital economy norms, climate policy, and security alliances. The most likely scenario is not an all-out trade war, but a prolonged structural conflict. The Trump administration, after the Supreme Court's ruling invalidating reciprocal tariffs, shifted to a new legal tool, Section 301, to maintain negotiation leverage. The EU is employing a strategy of selective adjustment between the conflicting demands of protecting digital sovereignty and ensuring economic stability. The core strategy recommended for both sides is 'principled flexibility'—creating a compromise space acceptable to the other party without compromising one's own core interests and values. The US should pursue its substantive goals of protecting Big Tech and improving trade balance, while the EU must simultaneously uphold the core principles of the Digital Markets Act (DMA) and maintain flexibility in its enforcement. If either side miscalculates or domestic political pressure reaches a tipping point, a rapid escalation into an all-out trade war cannot be ruled out, making the maintenance of institutional negotiation channels crucial for conflict management.

I. Issue Situation Analysis

US-EU Tariff Dispute and Structural Cracks in Transatlantic Trade Relations: Situation Analysis Report

1. Background and Course of the Issue

The trade dispute between the United States and the European Union is the result of structural tensions that had been latent since the first term of the Trump administration, which have now fully surfaced following the inauguration of the second term. President Trump declared April 2025 as 'Liberation Day' and abruptly introduced a broad system of reciprocal tariffs. However, this measure was subsequently struck down by the U.S. Supreme Court, resulting in a legal setback [2][9]. Consequently, the Trump administration pivoted to a new method of imposing tariffs using the existing legal basis of Section 301 of the Trade Act of 1974. This represents not merely a tactical adjustment but a significant shift in the very legal foundation of U.S. trade policy [1][7].

The direct trigger for the transatlantic trade dispute was the EU's regulatory actions against U.S. Big Tech companies. The European Union imposed substantial fines on major U.S. technology firms such as Google and Apple, citing violations of the Digital Markets Act (DMA) and antitrust regulations. The Trump administration characterized these actions as 'unethical' and 'unfair trade practices,' publicly threatening to impose tariffs on the EU. This escalated the conflict beyond a mere trade dispute, reflecting a fundamental clash of values between the U.S. and the EU over digital economy norms, technological sovereignty, and tax policy [20].

Furthermore, the Trump administration's tariff offensive was not limited to the EU. The imposition of a 25% tariff on Brazil marked the first practical application of the new tariff strategy utilizing Section 301 [1][7], setting a precedent for similar actions against other trading partners, including the EU, in the future. The global 10% tariff imposed by the Trump administration under Section 122 was scheduled to expire on July 24, 2025 [4]. The administration is strategically transitioning to replace this with a new tariff system based on Section 301.

2. Current Situation (Latest Developments)

The current U.S.-EU trade relationship is in a state of complex tension, with multiple conflict axes operating simultaneously. The most direct point of contention is in the area of digital regulation, where the U.S. views the EU's Big Tech fines as discriminatory targeting of American companies and has used tariff retaliation as an official threat. In addition, the U.S. has expressed strong concerns about the EU's Carbon Border Adjustment Mechanism (CBAM) and its plans to impose carbon costs on the aviation sector [19], indicating that climate policy is emerging as a new front in the trade dispute.

Notably, the EU's response to U.S. pressure has been characterized by selective adjustment rather than unilateral capitulation or full-scale confrontation. The European Commission modified its policy to defer sanctions against companies violating methane regulations until 2030, accommodating pressure from the U.S. administration and industry [10]. The EU is also pursuing deregulation in its Emissions Trading System (ETS), shifting its policy stance towards prioritizing the reduction of corporate burdens over decarbonization [11]. These moves demonstrate the EU's strategy of balancing avoidance of direct conflict with the U.S. while maintaining its own regulatory sovereignty.

Concurrently, the EU is actively seeking to diversify its external trade strategy. In its relations with China, it is working to secure deterrent measures for protecting key industries and de-risking supply chains [8]. France and Germany have agreed to develop a joint roadmap by September to counter China's unfair trade practices [14]. The European Commission has established an emergency task force to prepare for potential trade disputes with China [15], building a framework for simultaneous response to multifaceted trade risks.

3. Key Actors and Their Positions and Interests

The Trump Administrationis clearly pursuing strategic objectives as the primary driver of aggressive trade pressure in this dispute. The administration's core interests can be understood on three levels: First, to protect the global competitiveness of U.S. digital industries by shielding U.S. Big Tech companies from EU regulations. Second, to use tariffs as negotiation leverage to extract concessions such as market opening and regulatory easing from trading partners. Third, to reinforce domestic political support by reasserting U.S. economic dominance and hegemony [16]. As evidenced by the case of Brazil, the Trump administration employs a strategy of conditional pressure, where tariff levels can be raised or lowered based on the other party's response [6], a tactic likely to be applied equally to the EU.

The European Unionfinds itself in a defensive position in this dispute, but its internal stance is not monolithic. The EU's core interest lies in a complex balance between maintaining regulatory sovereignty over its digital market, protecting a fair competitive environment within its single market, and avoiding damage to its security alliance with the U.S. The EU frames its imposition of fines on U.S. Big Tech not merely as trade policy but as a matter of the rule of law and fair competition principles, adhering to a principled stance. However, it also demonstrates flexibility by responding substantively to U.S. pressure in certain areas, such as the deferral of methane regulations [10] and the easing of ETS [11]. Within the EU, there is a mix of hardline and moderate views towards the U.S., with internal divisions between countries deeply integrated economically with the U.S. and those emphasizing regulatory sovereignty acting as a constraint on the EU's response capabilities [20].

U.S. Big Tech Companies (Google, Apple, etc.)are direct stakeholders in this dispute, facing the burden of fines and operational restrictions due to EU regulations. While they have an incentive to leverage U.S. government diplomatic pressure to their advantage, they also need to manage their relationship with local regulations for long-term business operations in the EU market. The interests of Big Tech companies lie not in the short-term avoidance of fines, but in the easing or redesign of the EU's digital regulatory framework itself.

Brazilfinds itself in a similar position to the EU, having been the first major target of the U.S.'s new Section 301 tariff strategy. While the Brazilian government initially adopted a moderate stance, cautiously considering retaliatory measures [5], it later shifted to officially declare retaliatory actions, arguing that the U.S. tariffs violated multilateral trade rules [12]. Brazil's case serves as a significant precedent illustrating the choices faced by countries under U.S. tariff pressure between negotiation and retaliation, offering valuable insights for the EU's response strategy.

4. Summary of Key Issues

The key issues in the current U.S.-EU conflict can be summarized across four dimensions.

The first issue is the conflict between digital regulatory sovereignty and market access rights. The EU asserts its regulatory authority over companies operating within its market as a sovereign right, while the U.S. counters that the EU's Big Tech fines are effectively discriminatory measures targeting U.S. companies. This issue transcends a simple trade dispute, representing a structural competition for dominance in shaping norms in the digital economy era.

The second issue concerns the legal basis and sustainability of tariffs. Although the Trump administration has shifted to Section 301 as its primary legal tool following the Supreme Court's ruling invalidating reciprocal tariffs [7], legal debates surrounding the scope and procedural requirements of this provision are likely to persist. Furthermore, the uncertainty arising from the transition to a new tariff system after the expiration of the global 10% tariff under Section 122 [4] directly impacts corporate supply chain and investment decisions.

The third issue is the linkage between climate and environmental policies and trade. The U.S.'s strong opposition to the EU's Carbon Border Adjustment Mechanism and its plans to impose carbon costs on the aviation sector [19] demonstrate that climate policy is emerging as a new front for trade conflict. As long as the U.S. views the EU's use of carbon regulations as a non-tariff barrier, this issue will remain a structural source of conflict that is difficult to resolve in the long term.

The fourth issue is the erosion of the trust basis of the transatlantic alliance. The question of whether trade and commercial disputes can be separated from security alliance relations is emerging as a core concern. The Trump administration is employing complex pressure on Europe by linking NATO burden-sharing issues with trade imbalances [20], fundamentally shaking the trust basis of the transatlantic partnership built over decades. For the EU, managing the dilemma between security dependence and economic autonomy is becoming a key strategic challenge.

--- This report is based on publicly available information and may be subject to change as the situation evolves.

II. In-depth Issue Analysis

US-EU Tariff Dispute and Structural Cracks in Transatlantic Trade Relations: In-depth Analysis Report

1. Analysis of Fundamental Causes of the Issue

The current trade dispute between the U.S. and the EU, while superficially appearing as a trade conflict over tariffs and fines, is rooted in much more complex and structural causes. These can be analyzed across three main dimensions.

First, there is a fundamental divergence in digital economy norms. The U.S. and the EU have philosophically different starting points regarding how digital markets should be regulated. The U.S. views its Big Tech companies as core assets of national competitiveness and has adhered to principles of market laissez-faire, minimizing regulation on these firms. In contrast, the EU, through the Digital Markets Act (DMA) and Digital Services Act (DSA), actively regulates platform monopolies and has imposed substantial fines on U.S. companies like Google and Apple. The Trump administration's threat of tariff retaliation, calling these actions 'unethical,' is not mere diplomatic rhetoric but reflects a fundamental normative competition between the U.S. and the EU for leadership in shaping the digital economy order [20]. From the U.S. perspective, EU regulations are discriminatory measures targeting its own companies, while from the EU's perspective, they are legitimate exercises of sovereign power to ensure market fairness and consumer protection. This gap, representing a clash of values difficult to bridge through negotiation, foreshadows the persistence of the conflict.

Second, there is a legal and strategic realignment of U.S. trade policy. The Trump administration introduced a broad system of reciprocal tariffs on 'Liberation Day' in April 2025, but encountered a legal barrier with the Supreme Court's ruling invalidating the measure [2]. Consequently, the administration shifted to a new tariff imposition method utilizing Section 301 of the Trade Act of 1974. This strategy signifies more than a mere tactical adjustment [1][7]. Section 301 provides a legal basis for imposing tariffs after investigating 'unfair trade practices' of a specific country, allowing the administration to bypass judicial constraints while applying tailored pressure on individual trading partners. The imposition of a 25% tariff on Brazil, recorded as the first practical application of this strategy [1][7], implies that similar actions against other trading partners, including the EU, could materialize at any time. From the U.S. perspective, this strategy is a rational means to maximize negotiation leverage, while from the perspective of trading partners, it is perceived as a threat that unilaterally undermines multilateral trade rules.

Third, there is a conflict between climate policy and trade norms. The EU's Carbon Border Adjustment Mechanism (CBAM) and its plan to impose carbon costs on the aviation sector signal that climate policy is emerging as a new front for trade disputes. The U.S. has expressed 'deep concern' over the expansion of EU's carbon-related regulations [19], viewing them as de facto trade barriers. Conversely, the EU defines carbon regulations as legitimate policy tools for addressing the climate crisis. This conflict stems from fundamentally different approaches to climate policy between the U.S. and the EU—namely, the gap between the Trump administration's fossil fuel-friendly energy policy and the EU's decarbonization strategy—and contains structural causes that are difficult to resolve through short-term negotiations [10].

2. Structural Context

Political Structure

To understand the political structure of the U.S.-EU trade dispute, it is necessary to first examine the foreign policy orientation of the Trump administration. The Trump administration redefines alliances not from the perspective of traditional security communities but as transactional relationships based on cost-benefit analysis. President Trump has consistently criticized NATO allies for not bearing sufficient security costs since his first presidential campaign in 2015 [20]. This perception is directly reflected in trade policy. In the U.S. view, the EU is seen as a free-rider under the U.S. security umbrella while unfairly benefiting from trade. Within this framework, tariffs function not merely as economic tools but as political instruments to readjust alliance relationships and maximize U.S. interests.

The EU's political structure also contains factors that complicate its response. The EU has a multi-layered decision-making structure that requires coordinating the interests of 27 member states, leading to divergent responses to U.S. pressure. Some European countries are relatively benefiting from the restructuring of tariff systems as the Trump administration reshapes tariffs, making a unified EU response difficult. This acts as a structural vulnerability, hindering the EU from speaking with a single voice in negotiations with the U.S. Simultaneously, the EU faces the dual pressure of managing trade disputes with China [8][14], which constrains its negotiating power in relations with the U.S.

Economic Structure

From an economic perspective, the U.S.-EU relationship is characterized by a complex interplay of interdependence and competition. The transatlantic economic area forms the world's largest bilateral trade and investment relationship, with both sides exhibiting high levels of dependence on each other's markets. However, the paradox of the current situation is that this structure of interdependence does not necessarily lead to conflict deterrence. The Trump administration is leveraging this interdependence as a negotiating leverage, employing a coercive approach to induce policy changes in the EU through the threat of tariffs.

The economic structure in the digital economy realm further exacerbates conflicts. U.S. big tech companies generate substantial profits from the EU market, and EU fines and regulations directly impact these profit structures. From the U.S. perspective, EU digital regulations are an economic threat that weakens the global competitiveness of its domestic companies. From the EU's perspective, it is necessary to create a fair competitive environment for the development of its domestic digital industry. This structural asymmetry—the dominance of U.S. digital firms and the regulatory authority of the EU—acts as a factor that perpetuates fundamental tensions while leaving room for negotiation for both sides.

The EU's policy adjustment to defer sanctions for methane regulation violations until 2030 and ease regulations related to the Emissions Trading System in response to U.S. pressure[10] demonstrates that the EU is enduring a certain level of policy adjustment to minimize economic costs. However, whether these adjustments are sufficient to meet U.S. demands is a separate question.

Security Structure

The structural context at the security level is a key variable that further complicates U.S.-EU trade conflicts. While the transatlantic alliance has traditionally managed security and economy separately, the Trump administration has explicitly rejected this principle of separation. The transactional approach of linking security contributions with trade conditions undermines the very foundation of alliance trust[20], accelerating discussions on the need for Europe to strengthen its security autonomy.

The EU's security vulnerabilities serve as a structural weakness in negotiations with the U.S. Europe still relies significantly on the U.S. security umbrella, providing a structural incentive for the EU to opt for selective adjustments rather than full confrontation in trade disputes. Conversely, the EU is strengthening its independent capacity to manage trade conflicts with China[8][15], which could contribute to enhancing the EU's strategic autonomy in the long run. The agreement between France and Germany to establish a joint roadmap on China trade issues by September[14] can be interpreted as an attempt by the EU to reduce its dependence on the U.S. while securing its own strategic space.

3. Comparison of Historical Precedents and Similar Cases

Steel and Aluminum Tariff Dispute during the First Trump Administration (2018)

The most direct historical precedent for understanding the current U.S.-EU trade conflict is the steel and aluminum tariff dispute during the first Trump administration. In 2018, the Trump administration imposed 25% tariffs on EU steel and 10% on aluminum, citing national security concerns. The EU retaliated with tariffs targeting politically sensitive U.S. products such as Harley-Davidson motorcycles, bourbon whiskey, and jeans. Although this dispute was temporarily resolved through negotiations after the Biden administration took office, it remained in a state of suspension without a fundamental resolution and reignited with the commencement of the second Trump administration. This precedent offers two important insights: first, the U.S. threat of tariffs had a limited effect in inducing policy changes in the EU; and second, the EU's targeted retaliatory measures had a certain effect in generating political pressure within the U.S.

U.S.-EU Boeing-Airbus Dispute (2004-2021)

The subsidy dispute between Boeing and Airbus is a significant case for understanding the long-term structure of U.S.-EU trade conflicts. This dispute, filed with the WTO, lasted for approximately 17 years, marked by a cycle of retaliatory tariffs imposed by both sides, before reaching a final agreement in 2021 under the Biden administration. This case demonstrates that trade disputes between the U.S. and the EU can be prolonged even within the multilateral rule system and that agreements can be reached when there is political will. However, the current second Trump administration does not express confidence in the WTO system itself, making it difficult to apply the past dispute resolution pathways directly.

U.S. Trade Pressure on Japan (1980s-1990s)

The most comparable historical precedent of the U.S. using Section 301 to pressure trading partners is the trade pressure exerted on Japan in the 1980s and 1990s. At that time, the U.S. actively utilized Section 301 and Super 301 to demand access to Japan's semiconductor, automobile, and agricultural markets, to which Japan responded with measures such as Voluntary Export Restraints (VERs). This case, similar to the current situation with the EU, suggests that while U.S. unilateral pressure achieved some market opening results in the short term, it ultimately promoted structural adjustments in Japan that reduced its dependence on the U.S. in the long run. Furthermore, the experience of this period became a backdrop for the formation of the WTO system; however, the Trump administration is recycling Section 301 in a way that bypasses this multilateral system, creating a situation that is both a repetition of history and a qualitatively different phase[1][7].

Implications from the Brazil Case

The ongoing U.S.-Brazil tariff dispute warrants attention as a direct precedent for the EU. The Trump administration imposed a 25% tariff on Brazil based on Section 301, explicitly presenting a dual scenario where tariffs could be reduced or further sanctions imposed depending on Brazil's response[6]. While the Brazilian Minister of Finance initially adopted a cautious stance, stating that retaliatory measures would not be considered[5], the Brazilian government eventually declared official retaliatory measures[12]. This case illustrates how U.S. tariff pressure can function as a negotiating leverage while also triggering retaliatory responses due to domestic political pressure in the targeted country, offering implications for the response pathways the EU might choose if faced with a similar situation[3].

4. Key Variables in Issue Development

Variable 1: Stability of the U.S. Legal Tariff Framework

The fact that the Trump administration's tariff policies have consistently faced legal challenges is one of the most significant variables in the development of this issue. The global 10% tariff based on Section 122 was scheduled to expire on July 24, 2025[4], and the administration is pursuing a strategy to replace it with a new tariff system based on Section 301. While Section 301 is considered to have a more robust legal basis, it is not entirely free from judicial challenges. The possibility of legislative action by the U.S. Congress also acts as a variable. If Congress pursues legislation to limit the administration's tariff authority, the credibility of the Trump administration's tariff threats could be weakened[4].

Variable 2: EU Internal Cohesion and Consistency of Response Strategies

The EU's capacity to respond depends on how unified a stance its 27 member states maintain. The fact that some European countries are experiencing relative benefits during the restructuring of U.S. tariffs suggests the possibility of fissures within the EU. If the U.S. employs a strategy to weaken EU unity through bilateral negotiations with individual member states, the EU's collective response capacity could be significantly limited. On the other hand, the pursuit of a joint roadmap on China trade issues by France and Germany[14] is a positive signal demonstrating the strategic coordination capabilities of key EU countries, and whether this cooperation can be maintained in relations with the U.S. is a key variable.

Variable 3: Negotiability of Digital Regulation Conflicts

A crucial variable is whether the EU's imposition of fines on U.S. big tech companies is a negotiable area or a matter where negotiation is impossible due to EU legal procedures. The EU's Digital Markets Act (DMA) and antitrust regulations are enforced through independent judicial processes, creating a structural constraint that makes it difficult for the European Commission to arbitrarily adjust them for political reasons. However, given the precedent of the EU adjusting policies in response to political pressure, as seen in the easing of methane regulations[10], the possibility of some flexibility in the digital regulation domain cannot be entirely ruled out. The direction of this variable's development will be a key factor determining the short-term trajectory of U.S.-EU trade conflicts.

Variable 4: Degree of Linkage between U.S.-EU Security Relations

The extent to which the Trump administration links trade pressure with demands for security contributions is a critical variable determining the nature and intensity of the conflict[20]. The stronger the linkage between security and trade, the narrower the EU's room for negotiation, and the faster the discussion on strengthening Europe's strategic autonomy will accelerate. Conversely, if the U.S. adopts a strategy of separating security cooperation from trade pressure, the EU will have room to respond by managing trade disputes separately from security relations. As this variable is directly linked to the long-term structural changes in the Atlantic alliance, it carries strategic implications that extend beyond mere trade disputes, connecting to the reshaping of the international order[20].

Variable 5: The China Variable and the Dynamics of the Triangular Relationship

The U.S.-EU-China triangular relationship acts as a significant exogenous variable in the development of U.S.-EU trade conflicts. If the EU deems cooperation with the U.S. necessary to manage its trade disputes with China, its incentive to make concessions in trade disputes with the U.S. will increase. Conversely, if the EU believes it can manage its relationship with China independently or seeks to leverage its relationship with China as a counter-balance to U.S. pressure, it is more likely to adopt a tougher stance in negotiations with the U.S.[8][14][15]. The joint pursuit of a roadmap on China trade issues by France and Germany can be interpreted as an attempt by the EU to secure its own strategic space within this triangular relationship, and the success of this strategy will also affect its negotiating power with the U.S.[14].

This report is an analytical document based on publicly available information. Additional information gathering and expert consultation are necessary for actual policy decisions.