Trade idea: Will the EU impose tariffs on the US before May?

59% potential return (resolved within next few months)

Hello and welcome to the very first post of The Poly newsletter.

On these pages we hope to provide some of the best opportunities available on Polymarket, the world’s largest prediction market.

Before we proceed, please note that this newsletter is intended for information and entertainment purposes only. Predictions are based solely on our personal opinions and do not represent recommendations to place any specific trade or bet. Prediction markets are risky and it’s likely that over 80% of participants lose money over the long-term.

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Trade: Will the EU impose Tariffs on the US Before May?

Trade wars have historically been a high-stakes game of economic chess, and the latest developments between the U.S. and the EU are no different. With tariffs looming, the market may be underpricing the likelihood of escalation—creating an opportunity for savvy traders.

As of February 9th, Polymarket indicates a 63% probability that the European Union will impose tariffs on the United States before May. Given recent developments, this outcome appears increasingly probable. This market was at 75% just last Wednesday, but the odds have dropped – not due to any negotiations, but as a result of media attention shifting to other major stories, such as DOGE and USAID. With tariff discussions temporarily out of the spotlight, the odds on Polymarket have declined, presenting what I see as a prime opportunity to enter at favorable odds.

Recent Developments

President Trump has recently implemented significant tariffs: 25% on imports from Mexico and Canada, and 10% on Chinese goods. These tariffs are part of Trump's broader "America First" trade agenda, aimed at reducing the U.S. trade deficit and encouraging domestic production. The tariffs on Mexico and Canada were implemented as a response to trade imbalances and the renegotiation of NAFTA, now replaced by the USMCA. On Chinese goods, the tariffs are a response to concerns over intellectual property theft, forced technology transfers, and trade practices deemed unfair by the U.S. government.

Trump has also emphasized that the European Union has been "very out of line" in its trade practices, especially regarding agricultural subsidies and auto exports, suggesting that further tariffs on EU goods could be implemented pretty soon. His administration has argued that these measures are necessary to protect American jobs and industries from what they view as unfair foreign competition.

European leaders have expressed deep concern over these measures, emphasizing the potential for a detrimental trade war. Olaf Scholz, the German Chancellor, stated that the EU has the capacity to respond to tariff policies with tariff policies, while French President Emmanuel Macron stressed the necessity of responding to any trade attacks. Other EU leaders have said that Europe must present a united front, with Danish Prime Minister Mette Frederiksen calling for "a collective and robust response" to potential US tariffs and the European Council President Antonio Costa stating that the EU will be ready to defend its interests if Washington imposes tariffs. Given the responses from EU leaders, it appears increasingly likely that tariffs on EU goods will be implemented in the near future.

With tensions escalating, it's important to examine the core reasons why the U.S. is pushing for these tariffs and what that means for the EU’s response.

Reasons for Potential Tariffs

Donald Trump has long argued that the European Union has been taking advantage of the United States in trade, particularly highlighting trade deficits in the automotive and agricultural sectors. He has frequently expressed his belief that the EU treats the U.S. unfairly, often pointing to what he sees as an imbalance in trade. Trump claims that while the U.S. imports a significant number of goods from the EU, European nations do not reciprocate by purchasing enough American cars or agricultural products. He has stated, "They don’t take our cars, they don’t take our farm products. They take almost nothing and we take everything from them."

To address these concerns, Trump has emphasized the need to strengthen domestic manufacturing, particularly in the auto industry. He aims to encourage consumers to choose American-made products, reinforcing his broader goal of protecting and revitalizing U.S. industries.

Trade Relations Between the EU and US

The EU is a net exporter to the U.S., meaning that U.S. tariffs on the EU would give Trump significant bargaining power—something he’s used strategically throughout his career. His goal is to 1) reduce the trade deficit between the US and the EU 2) gain leverage over the EU. But let’s be real—the EU isn’t just going to roll over. Even if their response is more symbolic than severe, they’ll likely retaliate in some way. And here’s the key part: any retaliatory tariff from the EU, no matter how small, would be enough for this market to resolve yes on Polymarket.

Euro's Decline vs Dollar

The euro is now trading at $1.03, edging closer to parity—a one-to-one exchange rate – due to Trump’s talk of tariffs on the EU. It was trading at $1.12 just four months ago. The Forex markets are always anticipating future developments, and the current decline is the result of the market pricing in tariffs between the U.S. and the EU.

President Trump's Track Record of Fulfilling Promises

Since taking office, Trump has consistently followed through on his promises. He has intensified deportations, imposed tariffs on Mexico, Canada, and China, pardoned Ross Ulbricht, renamed the Gulf of Mexico to the "Gulf of America," declassified key government files, and redefined gender classifications. Given his track record, tariffs on the EU seem inevitable, likely pushing the euro to parity with the dollar.

The EU’s Tariff Plan

EU officials have been preparing their countermeasures to potential Trump tariffs since last year. European Commission President Ursula von der Leyen has made it clear that the EU won’t sit idly by if the U.S. targets European goods with higher tariffs. Instead, they are formulating strategies to respond swiftly and effectively.

The EU's approach involves more than just issuing warnings—it’s about strategic retaliation. In the past, Europe has targeted politically sensitive industries in Republican-led states, aiming to apply pressure where it matters most. For instance, when the U.S. imposed tariffs on steel and aluminum in 2018, the EU hit back with high tariffs on American whiskey, directly impacting Kentucky’s bourbon industry and putting pressure on Senate Minority Leader Mitch McConnell. A similar strategy could be in play this time, with the EU selectively applying tariffs to maximize economic and political impact.

One powerful tool the EU is considering is its anti-coercion instrument (ACI), which would allow it to impose tariffs on large American service providers, particularly in the tech sector. This mechanism gives the EU the ability to introduce countermeasures such as increased customs duties or import restrictions in response to U.S. economic pressure.

Conclusion

The probability of the U.S. imposing tariffs on the EU is likely in the 90-95% range, and an EU retaliation is almost inevitable. Given the EU's historical response to American tariffs, any retaliatory tariff—even if symbolic—would be enough to resolve this Polymarket bet as "Yes.

With Polymarket pricing this event at just 63%, the market appears to be significantly underestimating the likelihood of tariffs. Markets are often slow to price in geopolitical shifts, but this mispricing won't last forever. If you're looking for an edge, this is a trade worth considering before the odds adjust.