US President Donald Trump escalated his trade war with Mexico and Europe by slapping whopping 30% tariffs on both, after neither of them managed to cut a new trade deal before the July 9 deadline.

Over the weekend, the Trump administration released a complete list of new tariffs that will affect a total of 26 countries, imposing tariffs ranging from zero for Russia, but for the rest starting at 25%, and the highest rate of 40% for Myanmar and Laos.

Trump sent a letter to Brussels over the weekend, causing EU diplomats to scramble and cancel weekend leave for emergency meetings. Brussels had been holding out for a new deal that fixes tariffs at Trump’s minimum of 10% and was seeking numerous exemptions on things like cars, chemicals and pharmaceuticals. However, no deal was done.

Trump warned Brussels that if the EU tried to retaliate with reciprocal tariffs any number it came up with would simply be added to the US’ 30% rate.

Trump said in his letter that it was a “great honour” to continue trading with the EU, “despite having one of the largest trade deficits with you.”

As of 2024, the United States had a goods trade deficit with the European Union of approximately $202bn, according to data from the US Census Bureau, and this figure has been roughly constant over the last three years. However, if services are included, the total trade deficit is smaller at $177bn, as the US typically runs a services trade surplus with the EU and made $25bn from exports to the EU last year.

Services were not included in Trump’s Liberation Day tariff calculations, which focus exclusively on the goods trade deficit – something economists say is nonsensical.

“Our relationship has been, unfortunately, far from reciprocal. Starting on August 1, 2025, we will charge The European Union a Tariff of only 30% on EU products sent into the United States, separate from all Sectoral Tariffs,” Trump's letter says. “Please understand that the 30% number is far less than what is needed to eliminate the Trade Deficit disparity we have with the EU.”

Trump went on to say that there would be no tariff on any EU company that moved its production to the US. Trump then stuck the knife in, demanding no EU tariffs on US goods whatsoever.

“The European Union will allow complete, open Market Access to the United States, with no Tariff being charged to us, in an attempt to reduce the large Trade Deficit. If for any reason you decide to raise your Tariffs and retaliate, then, whatever the number you choose to raise them by will be added onto the 30% that we charge,” the letter said.

Cars and tariff levels on agriculture have been the key sticking points between the European Union and the US. The EU is willing to accept a tariff of no higher than 10% on agricultural exports, but cars has proved more difficult. An offset mechanism that some carmakers had pushed for as a way to grant tariff relief to companies in return for investments in the US isn’t under consideration for now due to EU worries that it could shift production across the Atlantic, Bloomberg reports.

The new tariffs will badly wound the already struggling EU economy. The US accounted for about 18% of European exports in 2024, making it the EU’s single largest export market. The new costs come as Europe is struggling with de-industrialisation due to energy prices twice as high as before the Ukraine war, falling competiveness, a cost-of-living crisis and the boomerang effect of the Russian sanctions.

The letter adds to European Commission President Ursula von der Leyen’s headaches, who survived a vote of no confidence last week. A failure to head off Trump’s tariff hike comes as her alliance is in disarray due to fractional tensions over her heavy-handed leadership style and the lingering “Pfizergate” coronavirus vaccine procurement deal she organised via text messages.

Hungary, which has von der Leyen in its sights, jumped on the bad news. “The European Commission’s incompetence. They failed to secure a favourable tariff deal w/ the US & once again, Europeans are paying the price. We said it: EU tariffs on the US should’ve been lowered after Trump took office. We need patriots, not bureaucrats!” Hungarian Foreign Minister Peter Szijjarto said in a post on social media.

 

Mexico more sanguine

Mexico was more relaxed about the announcement, saying it was sure that it could cut a new trade deal with Washington before the August 1 implementation deadline, with negotiations already underway between the two governments to defuse rising trade tensions.

Mexico ran a $153bn trade surplus with the US in 2024 on a total turnover of just under $800bn. The US remains by far Mexico’s biggest trade partner, slightly ahead of China, and the two economies are closely intertwined under the US-Mexico-Canada Agreement (USMCA). Automotive and manufacturing supply chains dominate bilateral trade. US and Mexican factories share complex production systems, with components often crossing the border multiple times before final assembly, which means goods in production will pay duties multiple times.

Mexican President Claudia Sheinbaum said her administration had begun discussions with Washington at the end of last week, shortly before Trump publicly floated the tariff threat on social media.

“We’ve had some experience with these things for several months now,” Sheinbaum said during a visit to Baja California for a clinic opening. “And I think we’re going to reach an agreement with the United States government.”

Tensions escalated in recent months after an increase in US border enforcement actions and sanctions imposed by the US Treasury on three Mexican financial firms allegedly linked to fentanyl trafficking. Trump railed against Mexico’s “lack of progress” in combating drug cartels, particularly over fentanyl production.

“Mexico still has not stopped the cartels, who are trying to turn all of North America into a Narco-Trafficking Playground,” he wrote on social media. “If Mexico is successful in challenging the cartels and stopping the flow of Fentanyl, we will consider an adjustment to this letter.”

Officials on both sides say that despite the vitriolic rhetoric, progress in the talks is being made, Bloomberg reports. Mexican Economy Minister Marcelo Ebrard said a new binational working group had been formed to address security, migration and economic cooperation at the weekend.

Bloomberg Economics reports that due to the close interdependencies of US and Mexican business, it is likely to be granted major exemptions from the new tariffs, excluding goods such as automotive manufacturing which are compliant with the USMCA deal. A US official confirmed the exemption is part of the current plan, though added that “the situation remains fluid”, Bloomberg reported.

US customs duty collections surged again in June as President Donald Trump's tariffs gained steam, topping $100bn for the first time during a fiscal year. The budget data showed that tariffs are starting to build into a significant revenue contributor for the federal government, with customs duties in June hitting new records, quadrupling to $27.2bn. US Treasury Secretary Scott Bessent said the US tariff revenue could reach $300bn in 2025, Reuters reports.