When US President Donald Trump announced broad tariffs on imports into the United States on April 2, 2025, the transatlantic economic relationship entered a new phase of uncertainty. The policies included a 10% base tariff on all imports into the United States and a higher 20% tariff targeting goods from the European Union. With this announcement, France faced a major economic setback that could affect several strategic sectors and trade volumes amounting to billions of euros.

The announcement came at a particularly sensitive moment for France’s economy, where boosting exports and revitalizing the industrial sector have been explicit government priorities under President Macron’s “France 2030” strategy. The new trade barriers threaten to undermine ongoing efforts to strengthen France’s manufacturing competitiveness and to rebalance its trade accounts.

Overview of the New Tariff Regime

President Trump described the tariff package he unveiled on April 2 as part of an attempt to “rebalance global trade flows” and bring about a new “golden age” of American reindustrialization. The policies impose a base tariff of 10% on all imports into the US, with a higher rate of 20% applied only to goods coming from the EU. These new tariffs are in addition to those that already exist, such as a 25% tariff on steel, aluminium, and related derivative imports that was put into effect earlier in 2025 and that had an impact on EU exports worth about €26 billion.

In order to address the US trade deficit, which was close to $1 trillion at the end of 2024, and the nation’s total debt, which hit a record $36.1 trillion (100% of GDP) in January 2025, Trump has presented these tariffs as a key component of his “America First” agenda. Initially, although some clauses permitted a phased implementation, the tariffs were expected to go into effect immediately. However, on April 10, 2025, the US and EU agreed to a 90-day reciprocal pause in response to escalating transatlantic tensions. As part of the deal, the EU suspended €22 billion in retaliatory actions on soybeans, motorcycles and cosmetics, while the US suspended its EU-specific 20% tariffs (maintaining a baseline of 10%). While existing steel, aluminum and auto tariffs remain in place, the pause, which is scheduled to end on July 9, provides an important respite for negotiations.

Compared to earlier trade disputes between the US and the EU, this most recent round of tariffs still represents a significant escalation. Even with the temporary suspension, the broad coverage and the scale of the proposed tariffs have created deep uncertainties for industries and trade relations on both sides of the Atlantic.

US-France Economic Relationship

The US-France economic relationship has traditionally been strong and mutually beneficial. As of 2023, France ranked fifth among foreign investors in the United States, with direct investment totaling $370 billion. Conversely, American investment in France reached $142 billion in the same year. Trade flows between the two countries are also substantial: the United States stands as France’s fourth-largest export destination and fifth-largest supplier of imports.

However, under President Trump, transatlantic trade has not been without difficulties. During his first term, tariffs on French wine and luxury goods between 2019 and 2021 led to a 40% drop in French wine exports to the US, causing losses estimated at nearly €500 million. These past disruptions created lasting sensitivity in key French industries and foreshadowed the deeper challenges now posed by the 2025 tariff measures.

The reimposition of wide-ranging tariffs thus threatens to damage not only sectoral exports but also broader investment relationships, complicating efforts to rebuild transatlantic commercial trust and collaboration in an already strained global economy.

Vulnerable French Economic Sectors

Aeronautics, pharmaceuticals, wines and spirits, and luxury goods together make up over one-third of French exports to the US, making several important sectors of the French economy especially vulnerable to the new US tariffs. The tariff regime presents unique difficulties and possible repercussions for each of these industries.

The French spirits industry, valued at €3.9 billion in annual exports, may be among the hardest hit sectors. Trump imposed 25% duties on French wines between 2019 and 2021 as part of a similar tariff war that later extended to cognac and other luxury liquors, causing this industry to suffer greatly in recent years. According to industry figures, the industry suffered a net loss of €500 million, and exports fell by 40% as a result of the disastrous outcomes. Similar or worse effects could result from the current round of tariffs, which could force French spirits producers to either absorb large margin reductions or lose market share if they raise prices to offset the tariffs.

Significant obstacles are also faced by the pharmaceutical industry, which makes up the second-largest category of French exports to the US. To get around the tariffs, French pharmaceutical companies might have to make tough choices about moving their operations, which could result in job losses in France if production is moved. Because of the intricate regulatory requirements and the high value-added nature of its products, this industry is especially vulnerable to trade disruptions.

Under the new tariff regime, luxury goods – a distinctive French export category that includes clothing, accessories, and cosmetics – will also face significant challenges. High-profile companies like LVMH, which is expected to be worth more than $400 billion by 2025, are particularly vulnerable. The US is LVMH’s largest domestic market, accounting for about 27% of the group’s worldwide sales. Numerous luxury brands rely significantly on the US market, and the significant price increases that would arise from passing on the tariff costs could test the price sensitivity of even high-end consumers. In order to preserve their market position, brands might have to reevaluate their pricing policies and even accept lower margins.

One-fifth of France’s exports to the US are in the aerospace sector. In 2024, France exported €9 billion worth of “aircraft and spacecraft” to the US. Although the company’s transnational nature and current U.S. manufacturing presence complicate matters, Airbus – which has its operational headquarters close to Toulouse – is particularly vulnerable to the tariffs. The global nature of aircraft production and the presence of rival US manufacturers like Boeing present complicated challenges for the aeronautics sector, which is dominated by firms like Airbus. In addition to possibly influencing significant airline company procurement decisions, the tariff situation may intensify already-existing tensions in this industry.

In addition to these important industries, the tariffs put further strain on the steel sector, which is already being weakened by international competition and the switch to electric vehicles. The new trade barriers will make the process of the automobile industry’s difficult transition to electric vehicle production even more difficult.

Quantifying the Economic Impact

France is expected to experience significant economic repercussions from the US tariffs, albeit somewhat less severe than other EU nations with greater trade exposure to the US market. A 10% tariff increase could lower economic output in France by about 0.3%, according to Natixis research, while Germany would see more substantial effects of 0.5% and 0.4% for Italy. The disparate export profiles and trade surpluses that various EU member states maintain with the US are reflected in this differential impact.

With a precipitous drop of more than 3% after Trump’s announcement – the biggest drop in two years – the Paris stock market has already shown that the market is worried about the tariffs. Investors’ evaluation of the significant risks to French corporate profitability and economic growth is reflected in this market response.

Significant effects on employment may result, especially in industries that are focused on exports. Approximately 741,000 people are employed by more than 4,200 French companies’ subsidiaries that currently operate in the US. President Macron’s suggestion that French companies halt or cut back on their US investments could have an impact on expansion plans and possibly result in job losses on both sides of the Atlantic. 

Patrick Martin, the head of France’s Medef business association, warned that the tariffs could “hit economic growth and lead to a recession” and voiced grave concerns about the state of the economy. This analysis emphasises how the trade dispute may lead to more significant macroeconomic issues outside of the industries that are directly impacted.

Additionally, trade balance considerations are crucial. Although France exports valuable goods to the United States, its main imports in 2023 will be hydrocarbons, such as gas and oil, valued at €12.2 billion. According to Hadrien Camatte, an economist at Natixis CIB, “France could try to use its energy imports as leverage in negotiations, potentially increasing its purchases of American hydrocarbons to ease tariff pressures.” This creates an imbalance in the trade relationship that could be used as leverage in negotiations.

France’s Response Strategy

In order to combat the US tariffs, the French government has laid out a multipronged strategy that includes coordination with EU partners, possible retaliatory actions, and diplomatic initiatives. In an indication of his resolve to implement robust countermeasures, President Macron has called for a response that would be “more massive” than France’s response to earlier US tariffs.

Macron’s demand that European businesses halt their planned investments in the US until the tariff situation is resolved remains a crucial component of the French strategy. This marks a major step up in economic diplomacy, successfully applying the pressure of European and French investment to the US government. Macron stated that “it is crucial that the investments that are forthcoming or those that have been declared in recent weeks be put on hold until the situation with the United States is clarified”.

However, the EU has improved its strategy since early April. On April 9, the European Commission authorised a three-phase retaliation framework. The 2018–2020 counter-tariffs, which ranged from 4.4% to 50% on €8 billion worth of US goods, were reinstated with immediate measures on April 15. A second escalation involving 25% tariffs on an additional €18 billion worth of American goods is planned for August 14 in the event that negotiations are unsuccessful. Beginning on December 1, a final phase would impose 25% duties on luxury goods, alcohol, and pharmaceuticals. Although it falls short of Macron’s earlier demand for an immediate freeze on European investments in the United States, this phased approach closely reflects France’s demand for a “massive but calibrated” response. In order to target politically sensitive Republican districts, the EU’s plan strikes a balance between negotiation flexibility and retaliatory pressure, focussing on iconic products such as bourbon and orange juice. 

President Macron has effectively lobbied for a number of crucial components of the EU’s coordinated strategy. Notably, the framework maintains a synchronised escalation mechanism by tying tariff escalation deadlines to the US’s maintenance of steel and aluminium duties. To increase Europe’s economic leverage, France also obtained a pledge to maintain options for targeting US financial and digital services in the event that negotiations fail.

However, there is internal opposition to France’s leadership in the EU. Germany supports a speedier de-escalation to safeguard its own highly export-dependent economy, while other member states, like Hungary, have publicly opposed any retaliatory action. The French government has lowered its 2025 GDP growth forecast to 0.7%, citing tariff-related risks, in light of the uncertainty surrounding the outcome of the negotiations. This is a slightly more optimistic estimate than the 0.5% growth predicted by the French Economic Observatory (OFCE) think tank. The EU’s main goals in the ongoing negotiations are to remove the 25% tariffs on automobiles and steel/aluminum products, increase access to the US market for European agricultural exports, and create reciprocal exemptions from taxes on digital services.

Negotiations are now shaped by important deadlines. If no agreement is reached, the EU may proceed with imposing 25% tariffs on US auto imports when the current 90-day tariff pause ends on July 9. The second phase of EU tariffs will automatically begin on August 14 and be followed by a final expansion that targets luxury goods and pharmaceuticals on December 1. Despite its vigour, France’s approach now depends on whether EU unity can be maintained in the face of conflicting national interests.

Business Perspectives and Adaptation Strategies

The announcement of the tariff has caused considerable concern among the French business community. The situation is “very serious”, according to Patrick Martin, head of the French employers’ federation Medef, who also noted that trade relations are growing more antagonistic. In order to make the economy more resilient to outside shocks, he called for accelerated efforts to streamline regulations and boost competition within France and Europe. 

President Macron’s remarks about the suspension of investment were echoed by business group France Industrie, which suggested that French manufacturers who were impacted by the tariffs might have to think about taking retaliatory action, such as halting investment projects in the US. A coordinated national approach to resolving the tariff challenge is indicated by this alignment between corporate strategy and government policy.

The corporate response, however, has exposed tensions between corporate realities and geopolitical strategies. The pharmaceutical industry in particular illustrates these conflicting pressures. In stark contrast to Macron’s earlier call for a freeze on new investments, Roche announced on April 22 that it would invest $50 billion to increase its manufacturing and research and development footprint in the United States. In the meantime, over 30 pharmaceutical companies based in the EU have called on the European Commission to implement regulatory changes and provide pricing protections, stating that the imposition of US tariffs may eventually force them to move their production outside of Europe in order to remain competitive.

Depending on their exposure to the US market and their capacity for adaptation, French industries are implementing a variety of strategies. Businesses in the luxury goods industry, like Hermès, have decided to absorb the effects of the 10% tariffs mainly by slightly compressing their margins, which has resulted in average price increases of roughly 6%. This risk is considered moderate, as the US accounts for around 28% of total luxury goods sales. The aviation sector faces a higher risk profile: Airbus has noted that it is “assessing the potential impacts” of the tariffs. The company could benefit from some of the quarantine measures due to its industrial facilities in the United States, including a final assembly plant in Mobile, Alabama, which will produce 500 single-aisle A320 and A220 aircraft by the end of 2024. Airbus has also highlighted its significant contribution to the US economy, purchasing more than $15 billion worth of parts annually from approximately 2,000 US subcontractors across 40 states and supporting approximately 275,000 American jobs.

In reaction to the tariffs, French businesses are likely to continue deploying a range of adaptation techniques. These could involve moving some production activities to the US or to countries with preferential trade agreements, as well as reorganizing supply chains to reduce exposure to American tariffs. Many businesses will need to make price adjustments and absorb some margin pressure to preserve their US market share. At the same time, strategies such as product innovation and differentiation to justify premium pricing, along with broader market diversification beyond North America, remain critical tools to manage risks and sustain growth.

Although the efficacy of these tactics will differ depending on the industry and specific business model, they collectively demonstrate the varied and flexible responses available to French companies as they navigate an increasingly complex global trade environment.

Historical Context and Lessons from Previous Disputes

There are precedents in US-EU trade relations for the current tariff dispute. Citing national security concerns, Trump’s administration levied punitive 25% steel and 10% aluminium tariffs in June 2018 during his first term. Both US allies and adversaries were subject to these obligations, which quickly prompted European retaliation.

The EU responded to the 2018 tariffs by imposing duties on iconic American brands like Florida orange juice, Levi’s jeans, Harley-Davidson motorcycles, and bourbon. This focused strategy was intended to influence products linked to politically significant states and constituencies in order to generate political pressure within the US.

Prior retaliatory actions have had varying degrees of success. They did not immediately result in a reversal of the tariff policies, but they did generate some domestic political pressure in the US. They did, however, ultimately force the US to engage in negotiations, indicating that even if a firm response does not immediately end the conflict, it can be useful in fostering an environment conducive to communication. 

The significance of strategic targeting in retaliatory actions is a crucial lesson from past trade disputes. The EU was able to increase the political impact of its response by concentrating on politically sensitive goods and areas. This implies that any new retaliatory actions ought to be carefully planned to maximise leverage and minimise economic harm to Europe.

The importance of perseverance and patience is yet another crucial lesson. Trade disputes often take a long time to develop, involving several rounds of negotiation and modification. Similar trends are likely to apply to the current conflict, which calls for ongoing involvement rather than a hasty conclusion.

Global Economic Implications

The rapidly changing global trade landscape surrounding the US-EU tariff dispute has important implications beyond the bilateral relationship. Global business planning and investment decisions are being affected by the uncertainty created by rising trade tensions between major economic powers.

The proposed tariff regime adds further pressure to global supply chains, which are already under stress due to the recent pandemic and ongoing geopolitical tensions. Even though a temporary 90-day pause has been agreed upon, the risk of future escalation remains significant. To adapt to the evolving trade environment, businesses with integrated global operations may need to reassess their distribution networks, sourcing plans, and manufacturing locations to build greater resilience against potential shocks.

In addition, there is the potential for the dispute to reignite into a broader international trade war if negotiations fail. The United States could respond with additional tariffs should the European Union move forward with its phased retaliation, potentially triggering a vicious cycle of escalation that could draw in other trading partners and weigh heavily on global economic growth. 

According to economists such as Vincent Vicard of the Centre for International Information and Prospects, Trump’s actions – even with current negotiations – could jeopardize the fundamentals of international trade. This raises broader concerns about the long-term stability of the global trading system and the possibility of further fragmentation into bilateral agreements or regional trading blocs.

Nevertheless, given its size and economic power, the EU remains in a strong position to address these challenges. The European Union is one of the world’s largest trading blocs, giving it significant bargaining leverage in trade negotiations and the capacity to deploy strong countermeasures if necessary. The outcome of the ongoing US-EU discussions will therefore have ripple effects not only across Europe and America but across the broader global economy as well.

Conclusion

The French economy is facing serious difficulties due to the ongoing tariff dispute between the United States and the European Union. The new tariff regime, even if suspended, continues to threaten strategic industries such as wine and spirits, pharmaceuticals, luxury goods and aviation, which could impact exports, job creation and overall economic expansion.

President Macron’s bold demands for a strong European response demonstrate France’s commitment to defending its economic interests. The coordination between the French government and major industry groups reflects a national consensus on the gravity of the situation and the need for swift, strategic action.

While trade disputes can be costly and disruptive, they can also be resolved through measured responses and ultimately negotiations, as historical experience has shown. The 90-day negotiating window created by the tariff freeze provides France and its European partners with an important opportunity to pursue a balanced solution. France’s influence over the EU’s phased retaliation strategy, combined with a flexible but firm negotiating stance, allows for adjustments based on evolving impacts and diplomatic developments.

However, the situation still requires careful strategic planning and resilient adaptation by French businesses. Supply chains, operations and market strategies will likely need to change to respond to long-term structural changes in global trade. While challenging, this moment also fosters incentives to increase competitiveness, diversify market access and accelerate innovation – potentially leading to long-term benefits for the French economy.

Looking ahead, both political and economic factors will determine whether the dispute leads to deeper transatlantic fragmentation or whether channels for compromise and cooperation can be maintained. The next few months, leading up to the crucial July deadlines and beyond, will be decisive in shaping the future of Franco-US and EU-US economic relations. At this fragile but crucial stage, sustained leadership and unity will be essential for France to defend its interests and contribute meaningfully to Europe’s collective strength.