Tariff Wars: An EU-Based Perspective on Geopolitical Shifts and AI Supply Chain Disruption
Abstract
This discussion evaluates the global impact of the United States' "Liberation Day Tariffs" through the lens of a European Union-based technology firm. Drawing on the history of tariff regimes and recent diplomatic tensions, including the Lithuania-China dispute, we assess how EU companies involved in the AI infrastructure value chain are repositioning to mitigate risk. Particular focus is given to how retaliatory threats, shifting alliances, and the European Union's regulatory instruments shape the evolving trade environment. We also assess the evolving trajectory of the U.S.-China trade war, up-to-date tariff rates, and explore possible futures for these global economic superpowers—and the implications for Europe.
1. Introduction: A European Lens on Global Trade Disruption
European Union companies are no strangers to the complexities of global trade, having long operated within a multilateral trade framework that values open markets and legal predictability. However, recent actions by the United States, culminating in the 2025 "Liberation Day Tariffs," threaten to upend decades of economic integration. As a company operating within the EU—dependent on seamless global supply chains for AI infrastructure, semiconductors, and digital services—we are acutely aware of the strategic risks posed by these protectionist moves.
This paper offers our perspective as an EU actor navigating the fallout from the U.S. tariff shift. We contextualize this shift historically and within the broader geopolitical trajectory of U.S.-China-EU relations, particularly recalling lessons from the Lithuania-China dispute of 2021–2022. We then turn to the evolving U.S.-China trade relationship and its far-reaching consequences for European companies and policymakers.
2. Historical Context: The Evolution of Tariffs and the EU’s Position
For much of the post-World War II era, global trade followed a path of liberalisation. Institutions such as the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), facilitated a steady reduction in tariffs, culminating in a period of global economic interdependence that benefited EU exporters and importers alike.
However, the trend began reversing with the onset of the U.S.-China trade war in 2018, when President Trump imposed sweeping tariffs on hundreds of billions of dollars’ worth of Chinese imports. The situation escalated significantly in 2025 after Trump returned to office. As of April 2025:
A 10% blanket tariff now applies to nearly all U.S. imports.
Country-specific reciprocal tariffs range up to 50%.
China faces a cumulative 125% tariff rate on all its exports to the U.S., due to layered penalties and retaliatory escalation.
The EU faces a flat 20% rate on its exports to the U.S.
These measures represent a profound break from the norms of multilateralism. The EU has consistently opposed such unilateral actions, advocating instead for WTO-compatible mechanisms. Our companies rely on predictability in tariff regimes, especially for products such as AI server components, semiconductors, and optical modules.
3. Lessons from Lithuania: Strategic Coercion and EU Vulnerability
The 2021–2022 dispute between Lithuania and China serves as a cautionary tale for EU firms. When Lithuania permitted the opening of a Taiwanese representative office under the name "Taiwan," Beijing responded with aggressive trade coercion—blocking imports and delisting Lithuania from customs systems. Though the EU formally supported Lithuania, it exposed the bloc’s limited capacity to respond swiftly and cohesively to economic coercion.
This episode catalysed the creation of the European Union’s Anti-Coercion Instrument (ACI), empowering the European Commission to retaliate against countries that use trade as a political weapon. This context is crucial for understanding how EU companies now interpret and respond to the new U.S. tariffs, particularly as we weigh the risk of becoming collateral in broader trade disputes.
4. Implications of the Liberation Day Tariffs for EU-Based Firms
4.1 Export Access and Investment Uncertainty
As an EU firm that exports digital and AI-related goods and services to the United States, we now face increased scrutiny and cost uncertainty. The 20% baseline tariff on EU goods, while lower than China’s 125%, still imposes significant operational costs, especially for equipment with global bills of materials.
4.2 Service Sector Ambiguities
Although the U.S. tariffs target physical goods, the growing rhetoric around digital sovereignty and taxation—especially proposals to expand Digital Services Taxes (DSTs) and data localization—pose a future threat. These measures could erode our cloud computing and digital platform businesses.
4.3 Supply Chain Restructuring Pressure
To maintain U.S. market access, EU companies are exploring production shifts to North America, particularly Mexico, under the USMCA framework. However, such reallocation carries transition costs, risks dilution of R&D integration, and complicates logistics.
5. The EU’s Strategic Toolkit and Coordinated Response
The EU’s initial response has been diplomatic restraint, emphasising WTO mechanisms and negotiation. Nonetheless, it has outlined contingency measures, including:
A renewed focus on finalising the Anti-Coercion Instrument for rapid retaliation.
Targeted DST expansions to counterbalance advantages enjoyed by U.S. Big Tech.
Strategic partnerships with India, ASEAN, and Latin America to reduce U.S. dependency.
The bloc's digital market regulations (DMA and DSA) are also being positioned as economic counterweights to U.S. tech dominance.
6. Future Outlook: U.S.-China Trade Trajectories and European Implications
The world’s two largest economies, the United States and China, are locked in a deepening cycle of economic disengagement. The escalation to 125% U.S. tariffs on Chinese goods, met by 84% retaliatory tariffs from Beijing, reflects a collapse in trust and a fundamental reassessment of trade interdependence.
While near-term diplomatic breakthroughs seem unlikely, several scenarios are plausible:
Stalemate and Diversification: Both powers may settle into a prolonged cold economic war, with firms seeking to de-risk via nearshoring and diversification. EU companies will face complex decisions about sourcing, market access, and risk exposure in both the U.S. and China.
Selective Engagement: In some sectors—like semiconductors or climate tech—mutual interest could foster cooperation. The EU could serve as a neutral facilitator or partner, enhancing its strategic importance.
Bifurcated Ecosystems: If decoupling accelerates, the world could see dual tech ecosystems—one U.S.-led and one China-led—with separate standards, supply chains, and platforms. EU firms may be forced to choose, or to develop interoperable systems, raising costs and complexity.
For Europe, the implications are vast. Regulatory agility, investment in domestic capabilities, and robust diplomatic engagement will be essential. The continent must also remain vigilant to avoid becoming a passive buffer zone between two giants.
7. Conclusions: Charting a Strategic Path Forward
For EU companies, the new U.S. tariff regime necessitates a recalibration of supply chains, investment strategies, and diplomatic risk assessments. The lessons from Lithuania underscore the importance of a collective EU approach to economic coercion. As we navigate the next phase of global economic turbulence, we must invest in strategic autonomy, diversify trade partnerships, and reinforce multilateral institutions.
The evolving U.S.-China rivalry presents both risk and opportunity. Europe can assert itself as a stabilizing force and innovation hub, but only through decisive, coherent, and forward-looking policy and corporate action.
Prepared by: [Longford International College – Policy and Strategy Division]