By Donald Trump’s recent threats to impose sweeping tariffs on European imports, citing the EU’s insufficient purchases of American exports, have revived anxieties around a potential trade war.
With a bold promise to enforce up to 20% tariffs on foreign goods if re-elected, Trump argues this approach will protect American industry and reduce the trade deficit.
However, economists warn that a trade rift with Europe could push the EU into an economic downturn, potentially leading to job losses and intensified supply chain disruptions.
This analysis examines whether the EU is truly at risk of paying “a big price” or if Trump’s claims are more about political leverage than economic reality.
EU’s vulnerability to tariffs
The EU and the US share a highly valuable trade relationship, with an exchange of goods and services valued at around €1 trillion annually.
Europe relies significantly on this trade, particularly in high-value sectors like machinery, vehicles, and chemicals, which comprise nearly 70% of its exports to the US.
Trump’s proposed tariffs could make these exports more costly for American companies, potentially reducing demand and cutting EU exports to the US by as much as one-third in certain sectors, according to economic forecasts.
Source: Eurostat/euronews
Germany, which relies heavily on US demand for its manufactured goods, could face a particularly steep impact, potentially losing up to 1.6% of its GDP due to such tariffs.
1% drop in the eurozone’s GDP?
Economists largely agree that the imposition of tariffs could have severe repercussions for the European economy, already under strain from other geopolitical challenges.
For instance, Goldman Sachs projects a 1% drop in the eurozone’s GDP if a universal 10% tariff is imposed.
Some estimates suggest even more drastic outcomes, including a recessionary scenario where eurozone growth might decline by 1.5% by 2028.
Given that transatlantic trade directly supports around 9.4 million jobs across the US and EU, a downturn could lead to widespread job losses, especially in trade-sensitive sectors like manufacturing and export-driven industries.
US could engage in broader trade conflicts
Beyond immediate economic impacts, Trump’s rhetoric suggests that the US could engage in broader trade conflicts.
His threats of a 60% tariff on Chinese goods could lead to an influx of redirected products to Europe, compelling the EU to impose protective tariffs on those goods.
According to André Sapir of the Bruegel think tank, this shift would put Brussels in a tough spot, likely prompting retaliatory measures to defend its market.
The EU has already been fortifying its trade defense policies in response to Trump-era tariffs on steel and aluminum, but an all-out trade war would test these defenses significantly.
Negotiating for Stability or Political Advantage?
In response to Trump’s tariff threats, the EU may seek a negotiated exemption, similar to the approach it took during Trump’s previous presidency.
Zach Meyers from the Centre for European Reform told Euronews that the EU could look to offer Trump concessions that allow him to declare a trade “win” without the economic fallout a full-scale trade war would entail.
Past interactions saw both European and Chinese leaders agreeing to increased purchases of American goods, a compromise that could potentially placate Trump without escalating tensions.
As Trump’s campaign rhetoric intensifies, his approach to trade policy raises questions about long-term EU-US relations.
While his tariffs are framed as protective measures for American jobs and businesses, they risk upending one of the world’s most lucrative trading partnerships.
Analysts caution that Trump’s proposed tariffs might appeal to his base, but the potential repercussions—a weakened EU economy and retaliatory tariffs—could backfire, increasing costs for US consumers and impacting American jobs reliant on the transatlantic supply chain.
In the end, while the EU may seek to negotiate or offer economic concessions, the “big price” Trump warns about could ultimately be felt on both sides of the Atlantic.
If both economies find themselves ensnared in tit-for-tat tariffs, the global trade landscape could face significant instability, affecting not just the EU and the US but global markets dependent on their economic partnership.
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