A trade war between the United States and the European Union, a prospect that has loomed over the world since last year, may be on the horizon as the two powers standoff over which side has the right to tax digital giants. A Euro-American trade war could be disastrous for the global economy, potentially even causing a global recession.

The prospect of a full-scale Euro-American trade war reared its head last year, amid an ongoing dispute over European subsidies benefitting Airbus (EADSY  ). During the conflict, which came to a head in October, the World Trade Organization approved $7.5 billion in tariffs against the E.U. in response to the subsidies, which were declared illegal under WTO regulations. The United States had claimed that the illegal subsidies were harming the sales of Boeing (BA  ) not only in the E.U. but in other countries as well. The WTO later ruled in December that the E.U. had not complied with the ruling made by the organization to end the subsidies. Throughout the dispute, the E.U. stood ready to retaliate, with some $20 billion worth of retaliatory tariffs prepared for use against the United States.

Economic tensions between the U.S. and E.U. reached a second dramatic climax on June 17, when the U.S. left the bargaining table over discussions of the taxation of American tech giants by European nations. The E.U. has sought to tax tech giants such as Alphabet (GOOGL  ), Amazon (AMZN  ), and Facebook (FB  ). Their monopolies exert significant power in Europe and beyond, but do not pay as much in taxes despite their significant presence. France, Italy, and the U.K.have already prepared to levy taxes against the companies to collect revenue on their significant operations; while some have been enacted, others were put on hold pending the outcome of U.S.-E.U. negotiations.

The departure of the United States from talks has caused some European leaders to signal that they may move ahead with levies against U.S. tech companies. President Donald Trump had previously threatened tariffs against any countries that went ahead with levies, though the E.U. appeared ready to proceed anyway despite the threats. Whether or not retaliatory tariffs are still on the table for the E.U. remains to be seen, given the lack of any mentions recently by European Commission members.

The threat of a trade war, however, still looms large, as it is highly unlikely European leaders will take American tariffs sitting down. Such a trade war was theorized by experts to be disastrous last year, well before the pandemic caused a global economic slump. Arancha Gonzalez, Executive Director of the International Trade Center, warned in October that a Euro-American trade war would result in a global recession.

"All of this is pointing in one direction. If we keep digging into that same hole, we will be looking into a major recession." Gonzalez said.

The effects of the U.S.-China trade were immense and widespread; the tariffs inflicted by both sides caused global trading to slow down, which in turn caused many companies to lose money and begin to amass products that they couldn't sell. Many small businesses in the U.S. felt an impact as well, with at least a third having reported increased costs of conducting business.

A second trade war with Europe would be substantially worse, given the fragile state of the global economy, which has had very little time to heal. The existing slump in trading would be compounded by skyrocketing prices caused tariffs, and some companies, already struggling financially, might not survive.

A myriad of other variables could also play into a potential trade war, including other issues causing tensions between the E.U. and U.S., such as the Russian Nordstream 2 pipeline, which has caused Senators in the United States to propose sanctions against European companies. Tantamount to the pipeline, Europe's position may not be as strong as previously thought, as its trade chief, Phil Hogan, is currently seeking the post of WTO chief, a position that would require the backing of Washington DC. The move by Hogan has potentially put Europe in a weaker place to negotiate, which might lessen the chances of a middle ground being reached before a trade war erupts.

Some experts, however, believe that there may yet be some relief, as they do not think that any substantial conflicts will arise before the U.S. presidential election in November.