Trade tensions between the EU and US ratcheted up this week when Brussels announced €26 billion ($28 billion) of tariffs on US goods, in response to the Trump administration's 25% levies on steel and aluminum.

Cecilia Malmstrom, who served as EU trade commissioner during the first Trump administration, sees the exchange of tariffs as "definitely an escalating conflict" and maintains that any question of "either side winning" fundamentally misunderstands the nature of trade wars.

"It's a lose-lose game," she told DW, adding that those who would stand to lose most are consumers and ordinary people because prices get higher, affecting inflation, jobs and growth.

She described the "big golden age that tariffs will bring to America" as an illusion that very few economists globally share. "There are a few around President Trump perhaps, but I would say 95% of economists across the world share the view that tariffs are basically not a good thing," said Malmstrom.

The European Union has made it clear it is fundamentally opposed to tariffs, with European Commission President Ursula von der Leyen saying higher tariffs are disrupting supply chains. "They bring uncertainty for the economy. Jobs are at stake, prices will go up," she told reporters in Brussels when announcing the EU response on Thursday.

Trump's tariff campaign has caused widespread concern about risks to the US economy. Several Wall Street banks and analysts have downgraded growth forecasts for the world's biggest economy amid gloomier data and downbeat sentiment about how tariffs could affect inflation.

'Most important commercial relationship in the world'

There's no doubt a lot is at stake. The EU describes the trans-Atlantic trade relationship as "the most important commercial relationship in the world."

EU-US trade in goods and services was €1.6 trillion in 2023, according to data released by the EU Commission in Brussels. The EU's executive arm describes the relationship as "balanced," saying the difference between EU exports to the US and US exports to the EU is the "equivalent of just 3% of the total trade" between them.

Trump has consistently complained that the EU sells far more to the US than it buys. EU data shows that the bloc exported €503 billion worth of goods to the US market in 2023, while importing €347 billion. However, the EU has acknowledged it has a services deficit of €109 billion with the US.

When it comes to European vulnerabilities, Malmstrom, now a nonresident senior fellow at the Peterson Institute for International Economics, is particularly concerned about the car industry.

"That is a target for President Trump, not only the German car industry but the car industry in general. They're already affected," she said, pointing to the example of Swedish automotive giant Volvo in her native Gothenburg.

"They're already affected by steel and aluminum [prices] because they are components in the car industry. And they are afraid that they will get tariffs as well. The car industry in Europe right now is quite vulnerable."

European car manufacturers have repeatedly warned of the dangers of tariffs at a time when the sector is struggling with competition from China, the switch to electric vehicles (EVs) and a trend toward deindustrialization across the continent.

Hildegard Müller, president of the German Association of the Automotive Industry, thinks if Trump were to increase tariffs on cars from the EU, this would have a "negative impact" on exports from the EU to the US.

"It would also be more expensive for consumers, all of which would cost growth and prosperity, on both sides of the Atlantic. The tariff level of 25% currently mentioned by President Trump is a provocation," she told DW in a statement.

Unpredictability makes negotiations hard

During her time as EU trade commissioner, Malmstrom negotiated directly with Robert Lighthizer, the US trade representative in the first Trump administration from 2017 to 2021. Those negotiations paved the way to a bilateral tariff reduction agreement struck in August 2020.

However, Malmstrom is concerned about the prospect of current negotiations due to what she sees as the unpredictability of the Trump approach.

"This time it's much more difficult because you don't really know what the aim is," she said. "This is just punishing us for bad tech rules, for unfair behavior, for Greenland, for what have you. How can you negotiate in a climate like that?"

Pointing to Trump's threat to impose more targeted tariffs in April, she also thinks the situation has the potential to escalate. But she insisted the EU will not be the one to do so.

"The EU will not escalate this. But on the other hand, the tariffs they are imposing on us are illegal. They are against WTO rules. They have no justification. And so you need to strike back," she said.

Damage on both sides

Calling on the EU to be "as prepared as possible" for a protracted and potentially damaging dispute, Malmstrom advocated for the use of the EU's Anti-Coercion Instrument. The tool was developed in late 2023 after China seriously disrupted trade with EU member Lithuania, when Taiwan opened a representative office in Vilnius. Although it was not actually used at the time, the EU developed it for potential use in future disputes.

To date the tool has never been used, but Malmstrom thinks it may ultimately have to be implemented for the first time if the EU determines that the Trump approach amounts to a form of "economic coercion." Then the EU would have legal powers to take action.

"It could be tariffs, it could be other kinds of restrictions or export limitations, it could affect investments, it could be public procurement restrictions. It's a quite big toolbox," she noted.

For the time being, Malmstrom hopes that "a deal can still be reached," even amid the current exchange of levies which is necessary to "negotiate from equal positions."

"But of course, nobody wants this to go on for years and years. Our industries are already suffering in Europe, and the damage will be big also in the US," she said.

Edited by: Uwe Hessler