The EU should not respond to Trump's tariffs, says former IMF chief

Olivier Blanchard, an economist and former chief of the International Monetary Fund (IMF), recommended that the European Union (EU) not respond to the tariffs imposed by U.S. President Donald Trump.

In a message posted on the social network X, Blanchard suggested that the best economic strategy for the bloc is to ignore Washington’s protectionist measures, announced yesterday, which include an increase of up to 25% in tariffs on European products such as cars, wines, and machinery.

These measures, aimed at reducing the U.S. trade deficit, could affect European exports valued at an estimated 50 billion euros annually, according to a recent report from the Centre for Economic Policy Research (CEPR).

Blanchard argued that retaliation from the EU would not be the solution. He noted that while Trump seems unlikely to back down from his trade policy, responding with more tariffs would only harm European consumers and the bloc’s economy, which is already grappling with challenges like inflation and energy uncertainty.

Instead, the university professor proposed that the EU adopt a strategic, long-term approach, prioritizing calm and the building of global alliances. The economist emphasized that the EU should form coalitions with countries in Asia, Latin America, and Africa that are willing to respect multilateral rules on issues such as corporate taxation, climate change, and health, to counter the impact of the United States’ unilateral policies.

Trump imposed tariffs to more than 20 countries. Source: N+.

A prior provocation

The context of the tariffs announced yesterday by the Trump administration adds pressure to transatlantic relations. The United States justified the tariffs as a response to what it considers unfair trade practices by the EU, including subsidies to key industries like automotive and agriculture.

However, the EU already imposes higher tariffs on U.S. goods, which could be interpreted as a prior provocation. For example, European tariffs on American agricultural products reach up to 20%, while U.S. tariffs on European goods were, until yesterday, an average of 10%, according to World Trade Organization data.

Blanchard also offered an alternative to pressure Washington without resorting to a trade war. He suggested that if the EU believes it can influence Trump, it should target strategic sectors like major U.S. tech companies, known as GAFA (Google, Apple, Facebook, and Amazon), using the EU’s anti-coercion instrument to impose restrictions. These companies, he argued, have direct access to the White House and could pressure the president to reconsider his stance, though he warned that this measure would come at a cost to European consumers who rely on these firms’ services.

Another key point in Blanchard’s recommendation is the reorientation of defense spending. He proposed that the EU shift a larger portion of its military budget from U.S. suppliers to European companies—a process that would take years but which he considers a priority. This idea aligns with recent plans from the European Commission, which on March 19 announced a fund to exclude U.S. arms manufacturers from its market.

In the trade sphere, Blanchard urged the EU to negotiate with China, particularly in the automotive sector. He recommended combining tariffs with incentives for foreign direct investment and the creation of joint ventures—a strategy that could mitigate the impact of European tariffs on Chinese electric vehicles.

The economic impact of Trump’s tariffs on the EU would be limited in the short term, reducing growth by less than one percentage point over the next four years. However, the uncertainty generated by these policies could influence inflation and the European Central Bank’s interest rate decisions in the coming months. In this regard, Blanchard stressed that the EU must act with a cool head, prioritizing a constructive response that strengthens its global position without falling into Washington’s protectionist game.