Trump’s new tariffs could push the EU to retaliate by targeting US tech services instead of goods, a Goldman Sachs report suggests. With Europe’s large trade deficit in services, Brussels may use digital restrictions to counterbalance Washington’s trade measures.
Donald Trump’s plan to slap fresh tariffs on the European Union could provoke retaliation in an unexpected way – not by taxing American goods, but by taking aim at the dominance of US tech firms in Europe’s digital economy.
The idea, outlined in a Goldman Sachs report released Monday, suggests that rather than responding with tit-for-tat duties on US exports, Brussels could exploit its growing trade deficit in services. By restricting American digital services, the EU could hit a sector that generates billions in revenue from European markets.
A new transatlantic trade war looming?
Trump vowed last Friday to impose “reciprocal tariffs” as soon as this week, fuelling fears of a renewed transatlantic trade war.
Goldman Sachs economists Giovanni Pierdomenico and Filippo Taddei said that they now expect expect the US to increase duties on European car exports by 25 percentage points and introduce a 10% tariff on a broad set of critical imports, ranging from metals and minerals to pharmaceuticals.
This move, they estimate, could impact EU exports worth €190 billion, or about 40% of the bloc’s total shipments to the US.
If tariffs are imposed, Goldman Sachs predicts the EU’s response will resemble the strategy it used in 2018, when Trump first targeted European steel and aluminium. At the time, Brussels retaliated with duties on key US products – including bourbon whiskey and motorcycles – covering about 40% of the affected EU exports.
A second round of tariffs was prepared but never implemented, pending a World Trade Organization ruling.
This time, the EU is likely to tread cautiously once again.
“We expect the EU to favour a de-escalation of trade tensions as much as possible and resort to strong retaliation only as a last resort”, economists said.
The digital economy: A new front in the conflict?
Unlike in 2018, however, the EU now has an additional tool at its disposal: the Anti-Coercion Instrument (ACI), a mechanism designed to counter economic pressure from third countries.
The ACI, which grants Brussels the authority to impose tariffs and restrict access to European markets in response to coercive trade measures, could provide a framework for action against Washington.
One area that could come under scrutiny is the digital economy. While the EU enjoys a significant trade surplus in goods with the US, it runs an annual trade deficit of nearly €150bn in services – half the size of its goods surplus.
A major factor in this imbalance is the dominance of American tech companies. These firms generate substantial revenues from European customers and repatriate earnings as royalties through low-tax jurisdictions like Ireland.
Goldman Sachs economists suggest that targeting this sector could be a way for Brussels to push back without resorting to a tit-for-tat tariff war on physical goods.
“Services imported by the EU from the US span different sectors, including the financial sector, but the lion’s share are IT services that are then invoiced as royalties channelled to the US from Ireland”, Goldman Sachs said, adding that any restrictions on these transactions could have a meaningful impact on the services trade balance.
A high-stakes decision
Unlike traditional tariffs, which can be imposed quickly, any measures under the ACI would require approval from at least 15 of the EU’s 27 member states, a process that could slow Europe’s response.
For now, Europe is watching Trump’s next move closely. If he follows through with his promise of new tariffs, Brussels will have to decide between direct retaliation on American goods or a more strategic approach – one that could put the US tech sector in the crosshairs of a trade war it has largely avoided until now.
