If there's one thing the EU knows about Donald Trump, it's that he loves tariffs. The incoming president said "tariffs" are "the most beautiful word in the dictionary" and threatened to impose them on U.S. allies around the world.

During the campaign, he proposed imposing tariffs of 10% to 20% on imports from all countries, with a 60% tariff reserved for China. After his election, Trump tweeted that the EU must buy more U.S. oil and gas "or else it's tariffs all the way!!!" This week, he announced he would create an "External Revenue Service" on Inauguration Day.

The European Commission, which is responsible for trade policy for the 27-member bloc, has been preparing for the next U.S. president since last summer. Details of the U.S. response to potential tariffs remain closely guarded secrets and depend on what the unstable incoming president actually does.

It is understood that the committee adopts a dual approach of carrot and stick. The stick is the EU's own retaliatory tariffs; the carrots include offers to buy more American goods. Before Trump's outburst on social media, European Commission President Ursula von der Leyen proposed that the EU could buy more LNG from the United States to replace the LNG it buys from Russia.

No matter how well prepared the EU is, officials remain concerned about the possibility of a trade war. In 2023, the trade volume of goods and services between the EU and the United States reached a record high of 1.54 trillion euros. European Commission officials described the trade as "balanced," noting that the EU buys more services from the United States than it sells. But Trump tends to focus on trade in goods where the U.S. has a deficit. "They (the EU) don't take our cars. They don't take our agricultural products. They sell millions of cars in the United States. No, no, no, they will have to pay a huge price," he said last October complained during the October campaign.

Even a 10% tariff would hurt European exporters, especially the beleaguered European auto industry. If Trump follows through on his threat to impose 60% tariffs on Chinese goods, the EU will face political pressure to follow suit and there could be a glut of cheap Chinese goods on world markets, driving down prices and hurting business for European producers.

“The EU needs to be prepared for all eventualities,” Ignacio García Bersero, former director of the European Commission’s Directorate-General for Trade, told the Guardian. The former official, who is now a fellow at the Brueghel think tank, believes Trump’s first steps will not be “as radical” as sweeping tariffs of 10% to 20%, which would have a “very significant impact” on the U.S. economy. destructive" consequences. Economists expect the tariffs to raise U.S. consumer prices and reduce household incomes and the size of the economy. García Bersero said that, at least initially, Trump's tariffs were "a threat rather than an actual measure."

Former EU-US trade negotiator García Bercero believes the EU's priority should be to avoid tariffs as much as possible, but he called for "credible threats of retaliation" in a paper. In 2018, in response to Trump's tariffs on European steel and aluminum, the EU hit back with tariffs on iconic American goods such as Harley-Davidson motorcycles, bourbon whiskey and orange juice from politically sensitive Republican states.

This time, the EU faces a broader threat that could affect all goods. García Bersero suggested the EU opt for a "negative list" that would impose mirror tariffs on all U.S. goods except for products critical to European buyers, such as liquefied natural gas.

EU officials studied the strategy pursued by former European Commission president Jean-Claude Juncker. Juncker promised to buy U.S. soybeans and natural gas and launch trade liberalization talks after Trump imposed tariffs on European steel and aluminum imports, convincing him to drop his threat to impose tariffs on European cars. Although the commission does not have the power to force private companies to buy U.S. soybeans, it can help reverse punitive tariffs by seizing on favorable market trends.

Sam Lowe, a partner at business consultancy Flint Global, believes governments around the world are considering similar strategies, especially as Europe seeks to replenish its defense stockpiles. "There's a theory that we're going to buy all this American equipment anyway. Can't we just package it up and put a big number on it? If that works, that would be awesome," Lowe said. "The uncertainty is whether that will be enough."

It's unclear whether Juncker's tactics will succeed with Germany's Christian democrat von der Leyen, who continues in the tradition of former German Chancellor Angela Merkel, who was given the cold shoulder by the erratic US president.

Other European leaders have closer ties to Trump, including Italy's Giorgio Meloni and Hungary's Viktor Orban, but it is uncertain whether these Eurosceptic leaders will use preferential access to promote a common EU Benefit. “One of my concerns is that (Trump) will single out some member states for preferential treatment, driving the EU apart and undermining a coordinated EU response,” Lowe said. “For example, if he threatened to impose tariffs on the entire EU but then announced that Italy, Hungary, Austria and the Czech Republic would be exempted, it would be difficult to predict how people would react.”

Complicating matters further, the EU's regulatory powers are likely to fuel the anger of Trump's followers. The committee is investigating Elon Musk's X and Mark Zuckerberg's Meta, two tech leaders who have moved closer to the Maga track to win over Trump. On the campaign trail, Trump's incoming Vice President J.D. Vance linked U.S. support for NATO to the EU's treatment of X. Although Vance did not specify what he meant, it showed how different issues could come together to put pressure on Europe.

Faced with an unpredictable United States, the EU will seek a common approach to trade with like-minded developed countries such as Japan and the United Kingdom. Chancellor of the Exchequer Rachel Reeves told reporters in Brussels last month that the UK would always "stand for free and open trade" but would not take sides.

The UK is very reluctant to get into a trade war. But it may have no choice. Lowe said that if talks with the Trump administration break down and "we are in a situation of a full-blown trade war" and the EU retaliates with tariffs, "I think by then the UK will have to at least consider it."

So far, the EU sounds united. Days after Trump's victory, the 27-nation European Union's leaders adopted a statement pledging to implement a trade policy that "defends and promotes the interests of the European Union." But the real test of that unity will not begin until Trump returns to the White House on January 20.