Lutnick Leverages Metal Tariffs Against the EU

Secretary of Commerce Howard Lutnick made a visit to Brussels this week, delivering a straightforward message: for Europe to receive relief from U.S. steel and aluminum tariffs, it must ease its regulatory and tax pressures on American tech firms.

This approach is refreshingly candid. There’s no elaborate moralizing or appeals to shared values — it’s more of a simple transaction. We have what you want, you have what we need; let’s strike a deal. This exemplifies the governing philosophy seen during the Trump administration when applied to real-world situations.

Essentially, this is how trade policy is shaped in Washington: America’s economic interests are the priority here. This is how mature discussions about transactions are conducted.

To provide some context, since the introduction of a July trade deal imposing a 15% tariff on many EU goods, European manufacturers have significantly increased their sales in the U.S. market. In contrast, there are steep 50% tariffs on steel and aluminum, affecting not just these metals but also metal parts within goods that contain them. German Economy Minister Katerina Reich acknowledged that many machines couldn’t be shipped to the U.S., leading to notable declines in sales for local companies. The situation appears to be worsening.

Europe is eager for tariff relief. Lutnick has promised to facilitate that, provided Europe addresses what he has termed the “regulatory chokehold” on tech firms and resolves existing issues, such as the nearly 3 billion euros in penalties faced by Google. It’s important to note that he did not suggest any relief from the 15% base tariff; his focus was precise: lift tariffs on steel and aluminum and related products, but only if Europe curtails digital protectionism.

Digital Services Protectionism in Europe

Lutnick’s strategy is notable because it treats regulatory policies as tools to be negotiated rather than as sacred rules. In response, European officials played their expected roles, with a committee spokesperson asserting that the EU has the sovereign right to legislate. Trade Secretary Maroš Šefčović insisted that the rules were neither discriminatory nor targeted at American companies.

Of course, Europe has every right to regulate within its borders. On the flip side, the U.S. is entitled to maintain its tariffs, which disadvantage European manufacturers. So, the real question isn’t about who has the right; it’s about what each party values more.

The numbers are telling. Digital Services Taxes (DSTs) introduced by France, the U.K., Italy, Spain, and Austria are projected to generate between $3 billion and $4 billion annually, with France and the U.K. each collecting around $1.1 billion, and Italy about $530 million. These sums seem substantial until you consider they represent mere rounding errors in national budgets, typically amounting to less than 0.5% of total tax revenues — France’s DST accounts for just 0.22% of that country’s total revenue.

If the goal were truly revenue, the taxes would be structured differently. Policymakers could enact broader digital commerce taxes or target high-profit companies or larger entities. However, the 2018 EU DST proposal intentionally set thresholds at €750 million in global revenue and €50 million in EU digital revenue, aiming specifically to dominate the American tech giant while stunting smaller European competitors. The tax applies to gross revenues, not profits, and targets sectors where U.S. firms lead, like online advertising and digital markets.

This feels like protectionism masquerading as tax policy, and ironically, it harms Europe itself. The DST was meant to penalize Big Tech, but companies simply shifted the costs onto consumers. Google has imposed a “DST fee” in the U.K., Austria, and several other countries. Similarly, Amazon raised selling fees, and Apple increased developer fees. Consequently, it’s European advertisers, merchants, app developers, and consumers who ultimately foot the bill.

So, while Europe collects small amounts from its own firms, Lutnick estimates it is sacrificing “hundreds of billions, perhaps $1 trillion, of investment” and potentially 1.5 percentage points of GDP growth. Even if those predictions are a bit optimistic, the discrepancy between Europe’s fight for a small percentage of tax revenue and what it stands to lose is striking.

But why cling to such self-defeating policies? It’s not merely about the bottom line; the DST regime serves as a protectionist tool for powerful domestic tech companies, creating a market shield intended to slow down their more competitive American counterparts. These are alongside various regulations and antitrust cases predominantly affecting U.S. firms. While Brussels claims neutrality, it feels less genuine when nearly all regulated companies are American.

Lutnick’s Strategic Play

Thus, Lutnick’s connection between steel tariffs and digital regulations is a clever national strategy. He isn’t arguing about ideological relevance; instead, he employs straightforward negotiation logic: You care about your manufacturers, we care about our tech firms — let’s make a trade. If one partner imposes unfavorable taxes on your business, it’s reasonable to prioritize the other party’s significant economic interests.

This strategy cleverly highlights the competing interests within Europe. It pushes Brussels to confront the reality that while the DST aims to support its struggling tech sector, it also endangers the more influential manufacturing sector. Lutnick laid bare the trade-off: Europe can either keep imposing penalties on American tech firms to shield its weaker tech industry, or it can reopen access to the U.S. market for its larger manufacturers; it can’t effectively do both.

If we add a broader context, the DST was initially intended to be temporary until the OECD Global Tax Agreement was finalized. However, this agreement has faced multiple delays — first to the end of 2023, then to mid-2024, and now indefinitely. Europe isn’t showing signs of abolishing the DST; in fact, France proposed doubling the DST rate if the OECD process falls through. As often happens with “temporary” taxes, these measures are becoming permanent because they serve political purposes.

Lutnick has effectively compelled Europe to recognize its real trade-offs. Brussels can choose to safeguard its “sovereignty” through protectionist digital taxes and policies, or it can negotiate on steel and aluminum. But it can’t successfully do both.

Washington has made its priorities clear, leaving Europe to decide if the politically convenient but modest revenue sources are worth the health of its manufacturing base. Lutnick approaches the barriers set by Europe as routine: not an abstract principle to uphold, but an obstacle to negotiate and eliminate.