Europe Gears Up for U.S. Trade Fight

Summary

WSJ What’s News: Europe Gears Up for U.S. Trade Fight – July 21, 2025

Hosted by Azhar Sucri for The Wall Street Journal

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Introduction

In the July 21, 2025 episode of WSJ What’s News, host Azhar Sucri delves into escalating trade tensions between the European Union (EU) and the United States (US). The discussion highlights the EU's preparations for a potential trade confrontation, internal dynamics within the EU, the impact of Japan's political landscape on US trade negotiations, and domestic US economic strategies. Additionally, the episode examines the UK's recent attempts to tax the super-rich and reviews significant corporate earnings reports.

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EU vs. US Trade Tensions

Escalating Trade Disputes

Azhar Sucri opens the episode by addressing the EU's mounting efforts to counteract US tariffs. Initially, the EU was optimistic about securing a trade agreement that would maintain baseline tariffs at 10%, preserving one of the world's largest trading relationships. However, US President Donald Trump's insistence on further concessions has derailed these negotiations.

Commerce Secretary's Stance

In an exclusive report, Sucri cites US Commerce Secretary Howard Lutnick's reaffirmation of the August 1 deadline for the EU to reach a trade deal. Lutnick emphasizes the importance of resolving the dispute, stating:

“These are the two biggest trading partners in the world talking to each other. We'll get a deal done. I am confident we'll get a deal done, okay? And it will be great for America because the president has the back of America.”
— Howard Lutnick [01:50]

EU's Internal Dynamics and Response

Sucri is joined by Dan Michaels, the WSJ Brussels bureau chief, who provides insight into the EU's internal debates. Michaels explains that the EU has historically been divided between hawkish members led by France and more conciliatory voices spearheaded by Germany. Recently, German representatives have shifted towards a tougher stance, aligning more closely with France's approach due to growing frustration with the US.

“The Germans now are more willing to discuss a more muscular response to US Tariffs, you know, if they come in in a way that the EU finds really unfavorable.”
— Dan Michaels [02:24]

Background on US-EU Trade Relations

Michaels further elaborates on the deteriorating trade relationship, highlighting President Trump's longstanding criticism of the EU and his focus on trade imbalances. He notes:

“President Trump, since his first term, has been very critical of the EU. He has said a few times things like that the EU was created to screw the US and then the Europeans take advantage of the US on trade.”
— Dan Michaels [03:23]

Michaels points out that while the EU maintains a trade surplus in goods, the US counterbalances this with a services surplus. Despite the EU's attempts to bridge the gap by increasing purchases of US fuel, energy, agricultural products, and defense systems, inconsistent messaging from various US officials has strained negotiations.

Potential EU Retaliation in Services

The conversation shifts to the EU's novel approach to retaliate by targeting the US services sector—a move unprecedented in significant measures. Michaels explains the complexities of imposing tariffs on intangible services compared to tangible goods:

“It's really a new realm, partly because the service economy is relatively new compared to the trade in goods... how one puts a tariff on either digital data or financial services is something people are still scratching their heads about.”
— Dan Michaels [04:59]

This strategy underscores the EU's intent to level the playing field, as services constitute a more substantial portion of the US economy compared to goods.

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Impact of Japan's Political Landscape on US Trade Talks

Sucri transitions to discuss the recent parliamentary elections in Japan, which have significant implications for US trade negotiations. Prime Minister Shigeru Ishiba's coalition has suffered setbacks, losing control of both the lower and upper houses of Parliament. Ishiba's hardline stance on trade with President Trump aimed to solidify his leadership but has instead weakened his position.

Treasury Secretary's Intervention

Amidst these political upheavals, Treasury Secretary Scott Besant is actively engaging President Trump to prevent the dismissal of Federal Reserve Chair Jerome Powell. Besant argues that removing Powell could destabilize the US economy, especially as the economy has shown resilience despite the ongoing trade war.

“It's really not worth his while to try to fire Jerome Powell, partly because, look, the economy’s holding up okay.”
— Scott Besant [07:01]

Besant warns that disrupting the coordination between the Treasury and the Federal Reserve could exacerbate inflationary pressures, hindering economic stability.

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UK’s Taxation of the Super-Rich: Consequences and Challenges

Transitioning to global tax policies, Sucri explores the UK's recent initiative to tax the super-wealthy. In an effort to balance its budget, the UK abolished the "non-domiciled" status in April, which previously allowed foreigners living in the UK to be taxed only on their domestic earnings.

Exodus of the Wealthy

Journal markets reporter Chelsea Dulaney highlights the unintended repercussions of this policy change:

“The UK is having a lot of problems right now balancing its budget. They took the plunge, they eliminated the system... now too many of them have left or are planning to leave that it's actually going to end up costing the government money.”
— Chelsea Dulaney [10:22]

The expectation was to generate approximately $45 billion by 2030 through this tax reform. However, the rapid departure of wealthy individuals has cast doubt on the policy's effectiveness and raised concerns about potential financial losses for the government.

Global Implications of Taxing the Wealthy

Dulaney also connects this scenario to a broader trend, noting similar attempts worldwide to address income inequality and fund social initiatives by taxing the ultra-wealthy. She references New York's consideration of a "millionaires tax," emphasizing the recurring challenge governments face in implementing such measures without triggering capital flight.

“The fear of that has always been that they'll leave and they'll take their businesses and that money with them.”
— Chelsea Dulaney [10:54]

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Corporate Earnings and Market Implications

In the latter segment, Sucri reviews key corporate earnings that have significant market implications:

1. Stellantis: The automaker reported a net loss of approximately $350 million in the first half of the year, attributing the decline to US tariffs. Vehicle shipments in North America plummeted by 25%, particularly affecting the Jeep brand.

2. Ryanair: Contrary to Stellantis, Ryanair experienced a robust first-quarter net profit, more than doubling its earnings. This success is attributed to an early Easter holiday and a 21% increase in fares, along with higher passenger numbers. However, challenges persist with delayed Boeing aircraft deliveries, which may suppress second-quarter fare growth.

3. Alaska Airlines: The airline faced operational disruptions due to a significant software outage, leading to a temporary grounding of its fleet. Recovery is underway, but full restoration of services will take additional time.

4. Microsoft: The tech giant issued a security alert regarding active cyberattacks targeting its SharePoint server software. Microsoft urges customers to install new security updates and recommends disconnecting servers from the Internet if immediate protection is not feasible.

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Conclusion

The episode underscores the intricate web of international trade relations, domestic economic strategies, and fiscal policies shaping the global economic landscape. As the EU prepares for a potential trade confrontation with the US, internal shifts within the EU and external political developments, such as Japan's election outcomes, play pivotal roles. Simultaneously, the UK's ambitious taxation reforms reveal the delicate balance governments must maintain to fund social priorities without triggering capital flight. Corporate earnings further illustrate the tangible impacts of these macroeconomic factors on businesses across various sectors.

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Produced by Daniel Bark and Kate Bullivant, with supervising producer Sandra Kilhoff. For more insights, tune in to the next episode of WSJ What’s News.

Transcript

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[Azhar Sucri]

The European Union is gearing up for a trade fight with Washington. Plus how the US treasury secretary has been steering Trump away from firing the Fed chair and the perils of raising taxes on the super rich as the UK Seems to learn a bitter lesson.

[Chelsea Dulaney]

A lot of billionaires, a lot of millionaires say they're leaving, they're going to Dubai, they're going to Italy, they're going to Switzerland. So that's always been the fear that it's actually going to end up costing the government Money.

[Azhar Sucri]

It's Monday, July 21st. I'm Azhar Sucri for the Wall Street Journal. Here is the AM Edition of what's news, the top headlines and business stories moving YOUR world. The European Union thought it was on the brink of a trade deal that would help the bloc avoid higher US Tariffs and protect the world's biggest trading relationship. Now we are exclusively reporting that EU member states are pressing the bloc's executive body to prepare new targeted measures to hit back against US companies if a deal can't be reached. By the August 1 deadline set by Trump, the EU had been working towards an agreement that would have kept baseline tariffs at 10% until U.S. officials said President Trump was demanding further concessions. Still speaking to CBS's Face the Nation yesterday, Commerce Secretary Howard Lutnick doubled down on the August 1 deadline for the EU to reach a deal.

[Howard Lutnick]

These are the two biggest trading partners in the world talking to each other. We'll get a deal done. I am confident we'll get a deal done, okay? And it will be great for America because the president has the back of America. So I think all these key countries will figure out it is better to open their markets to the United States of America than to pay a significant tariff. And Donald Trump has made that point clear.

[Azhar Sucri]

For more, I'm joined now by our Brussels bureau chief, Dan Michaels. Dan, what are we hearing about how the EU is now approaching these talks?

[Dan Michaels]

The EU has shifted in its position in internal discussions from a debate among the 27 members about how hard to push back with essentially two camps until recently, one led by France that was more hawkish advocating a stronger pushback, and one more dovish led by Germany trying to soften things and avoid confrontation with the US but as of late last week, it seems the Germans have swung more towards the French position, getting essentially fed up with the US and it Seems the Germans now are more willing to discuss a more muscular response to US Tariffs, you know, if they come in in a way that the EU finds really unfavorable.

[Azhar Sucri]

And, Dan, just remind us how we got here and how the relationship between the EU and the US on the trading front has deteriorated.

[Dan Michaels]

Sure. It's important to remember that President Trump, since his first term, has been very critical of the eu. He has said a few times things like that the EU was created to screw the US and then the Europeans take advantage of the US on trade. And the EU has tried to negotiate, while also arguing that, you know, it disagrees with Trump's position on that, because Trump is very focused on the imbalance in trade in goods, physical goods. The EU has a trade surplus in goods, but actually when it comes to services, the US Has a surplus. So the EU argues that things aren't really as imbalanced as Trump presents them. So they've gone into negotiations, and the EU has tried to put on the table offers like buying more US Fuel and energy products, agricultural products, more recently Also, along with NATO, more weapons systems from the U.S. and this is hard to understand exactly what's going on, especially for the Europeans. There are multiple players. There's the President, then there's the Commerce Secretary, the Treasury Secretary, the US Trade representative. And the Europeans have gotten frustrated by getting conflicting and changing messages from them. So European patience seems to be wearing thin.

[Azhar Sucri]

So could any EU retaliation extend into the services arena, which, as you said, actually forms a very, in fact, probably a larger proportion of the overall trade relationship?

[Dan Michaels]

The EU is for the first time looking at targeting services. It's something that hasn't been done to a large extent, really, anywhere other than things like digital taxes. It's really a new realm, partly because the service economy is relatively new compared to the trade in goods, things like cars or shirts or food. And it's much easier to put tariffs on shiploads of goods coming into ports than it is to figure out what does a tariff on a streaming video or financial transactions look like. And so how one puts a tariff on either digital data or financial services is something people are still scratching their heads about. But the EU seems to have some ideas on how to do it. And it is really the area where the US Is most vulnerable to the eu.

[Azhar Sucri]

Dan Michaels, thank you ever so much.

[Dan Michaels]

Always good to talk with you. Thanks.

[Azhar Sucri]

Japan's ruling coalition has been dealt a significant blow in parliamentary elections, threatening to derail US Trade talks just weeks before punishing tariffs are set to take effect. Prime Minister Shigeru Ishiba has gambled that his tough stance on trade with President Trump would help cement his shaky grip on power. But his coalition has now lost control of Parliament's upper house, having already lost its lower House majority in a vote in October. Ahead of voting, polling showed Japanese voters were far more focused on inflation and immigration than they were on U.S. tariffs. And we are exclusively reporting that Treasury Secretary Scott Besant has been laying out his case to President Trump for why he shouldn't try to push out Fed Chair Jerome Powell. Trump has threatened to end his contract before it's due to expire in May. But as finance editor Alex Frangos explains, that threatens to derail the US Economy.

[Scott Besant]

A few months ago, when Trump launched his trade war, economists got very pessimistic and business leaders as well. And there's a sense that the economy is kind of holding up better than people expected. Treasury Secretary Besant went to President Trump this week to try to persuade him that it's really not worth his while to try to fire Jerome Powell, partly because, look, the economy's holding up okay. And history has showed us when central banks work in conjunction with the treasury to keep borrowing costs low for the government, you get a lot of inflation. So that was the pitch that he was making to the president.

[Azhar Sucri]

Coming up, we look at why the UK's attempt to tax the super rich is backfiring, and a closer look at this morning's major earnings. Those stories and more after the break.

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[Azhar Sucri]

Earnings are in full swing with Stellantis saying this morning that U.S. tariffs cost the carmaker around $350 million in the first half of the year, resulting in a net loss. The Jeep maker said vehicle shipments fell, driven by a 25% drop in North America. On the other hand, Ryanair's first quarter net profit more than doubled thanks to an early Easter holiday and a 21% increase in fares. More passengers flew with Ryanair, and the low cost carrier expects that growth to continue. That said, heavily delayed deliveries of new Boeing aircraft is weighing on traffic, with second quarter fares expected to be lower. Alaska Airlines has resumed operations after grounding its entire fleet for several hours yesterday evening due to a sock software outage. The airline said it requested a temporary system wide ground stop for Alaska and Horizon Air flights because of the IT issue and says it'll now take some time to get overall operations back to normal. And Microsoft has issued an alert about what it described as active attacks targeting its SharePoint server software and urged customers to install new security updates. Organizations typically use Microsoft SharePoint to create intranet websites, store information and facilitate file sharing. Microsoft said that if customers can't enable the new protections, they should disconnect their servers from the Internet until a security update is available. And finally, a British attempt to tax the super rich is off to a bumpy start. Close to 75,000 people were estimated to be using a tax loophole dating from 1799 that allowed foreigners living in the UK to pay tax only on what they earned domestically. That is until the so called non domiciled or non dom status was abolished by the British government in April. Journal markets reporter Chelsea Dulaney says some wealthy expats are getting out, sparking questions about whether the move will raise any money at all.

[Chelsea Dulaney]

The UK Is having a lot of problems right now balancing its budget. They took the plunge, they eliminated the system and they did that with the anticipation that some of these billionaires and these rich people would leave. And it was hoping that this would bring in about $45 billion by 2030. There's definitely been a bit of a worry now that so many of them have left or are planning to leave that it's actually going to end up costing the government money.

[Azhar Sucri]

And Chelsea says the UK is not alone in trying to tackle the age old question of how to collect more taxes.

[Chelsea Dulaney]

The ultra wealthy, you know, we're seeing income inequality really explode. A lot of governments don't have as much money as they'd like to. They're trying to raise money. So taxing the wealthy has become an answer to a lot of those questions of how do we reduce inequality, how do we fund social priorities, including in New York right now where the Democratic mayoral nominee Zoran Mamdani has talked about the so called millionaires tax. The fear of that has always been that they'll leave and they'll take their businesses and that money with them.

[Azhar Sucri]

And that's it for what's news for this Monday morning. Today's show is produced by Daniel Bark and Kate Bullivant. Our supervising producer was Sandra Kilhoff. I'm Azhar Sucri for the Wall Street Journal. We'll be back tonight with a new show. Until then, thanks for listening.