The US$7.5 billion tariffs were levelled over illegal EU subsidies to aeronautic giant Airbus.
Ten per cent tariffs were placed on EU-made airplanes while a number of other products – including cheese, meats, and wine – will be subject to 25 per cent tariffs.
“This is the most significant trade action against the EU since the steel and aluminium tariffs of last year,” Kapstream portfolio manager Dan Siluk told Investor Daily.
While US imports are on a comparable scale with Europe and China, Europe accounts for a much higher proportion of US exports – US$575 billion compared to China’s US$120.3 billion.
“The EU and the US is the largest single bilateral trade flow in the world… by nature of that dynamic, an escalation in trade war between the US and Europe can be of a greater scale than that with China,” said Mr Siluk.
“While it’s minor to begin with the tariffs are certainly a knock to consumer confidence, they’re a knock to business confidence, it ultimately leads to risk-off, you’ve seen stock markets drop, you’ve seen rates rally.”
If the dispute heats up, European automakers could find themselves in the firing line. The Trump administration has previously threatened to set tariffs of 25 per cent on European auto exports, an option that has not been taken entirely off the table.
But others are less certain that the dispute will escalate into a full-blown trade war.
UTS Business School executive and former ANZ Chief Economist Warren Hogan says that while the tariffs are cause for alarm, they don’t necessarily signal the start of a dispute on the scale of the US-China conflict.
“It could trigger, in the short term, a series of tit-for-tat retaliatory measures that may be cast in the frame of a trade war. But this is something that’s been going on since the GFC and it has intensified incredibly under Trump.”
Professor Hogan says that the tariffs are more indicative of what he believes to be a move towards economic protectionism.
“It’s a global trend and I think that what worries me is that this is de-globalisation in action,” he said.
“And of course what that means is potentially a less productive world economy and lower living standards for all.”
