The much-awaited 2 April—dubbed “Liberation Day” by the Trump administration – has arrived, with Washington poised to unveil sweeping new tariffs on its major trading partners, placing the European Union directly in the firing line.
Latest reports suggest the new duties could reach as high as 20% on all imports, targeting a wide range of sectors from cars to pharmaceuticals. If enacted, the move would mark a sharp escalation in transatlantic trade tensions, and potentially deliver a heavy blow to Europe’s already sluggish industrial momentum.
But just how severe could the economic fallout be for Europe and which countries would be hit hardest?
In 2024, the European Union exported €382 billion worth of goods to the United States, data from the International Trade Centre shows.
The US accounted for 12% of the EU’s total external demand, making it the bloc’s largest single export market.
Applying a flat 20% duty across these flows could translate into an €85bn direct decline in exports—though the indirect impact could run deeper as higher prices dent American demand.
Germany, Slovakia and Hungary face disproportionate blow
Nowhere is the risk more acute than in the automotive sector, a traditional pillar of European industry and a symbol of Germany’s export-led model. In 2024, EU vehicle exports to the US amounted to €46.3bn.
These could now face combined tariffs of up to 45%, 20% under Trump’s new measures and a pre-existing 25% levy announced earlier in March.
At that rate, the new duties could make European vehicles largely uncompetitive in American showrooms raising the prospect of a near-total collapse in European car shipments.
“Tariffs on automotive exports present a major challenge for Germany’s economy,” said Daniel Parker, economist at Capital Economics.
“Stuttgart, Upper Bavaria and the Braunschweig region—which includes Wolfsburg—are likely to suffer the most pronounced impacts.”
These areas are not only home to Mercedes-Benz, BMW and Volkswagen production hubs, but they also serve as critical nodes in the global auto supply chain.
Their plants are deeply integrated with US assembly operations, and their seaports—particularly Hamburg and Bremerhaven—handle significant volumes of outbound shipments to the American market.
The ripple effects go far beyond Germany. Slovakia, home to Kia and Volkswagen factories in regions such as Nitra and Zilina, is highly exposed. So are automotive clusters in Hungary’s Gyor and Austria’s Linz and Graz.
Any disruption to German exports could cascade across Central Europe’s highly specialised supplier network.
Pharmaceuticals will also feel the pain
Pharmaceuticals, the EU’s most lucrative export category to the US, are also at risk.
The sector notched up a record trade surplus in 2023, with exports to America accounting for nearly 15% of total gross output. Ireland and Denmark led the charge, driven by the surging success of firms like Novo Nordisk.
Since 2022, Danish industrial output has been buoyed by Novo Nordisk’s blockbuster weight-loss drugs such as Ozempic. US demand alone generated two-thirds of its revenue in 2023.
But that very success may now invite retaliation. Reports circulating in Washington suggest a targeted levy on semaglutide—the active ingredient in Novo’s treatments—could be on Trump’s radar, ostensibly to pressure Denmark over geopolitical issues like Greenland.
“One strategy could involve imposing a specific levy on semaglutide, the key ingredient in Novo Nordisk’s weight-loss drugs, which would disrupt Danish exports while benefitting US competitors,” Parked said.
Goldman Sachs scenarios paint a bleak picture
Goldman Sachs’ economist Giovanni Pierdomenico sees broad macroeconomic consequences.
In the firm’s baseline scenario, new tariffs would raise the average effective duty on EU goods to 20% from the current 7%. In a more adverse case, which includes US adjustments for Europe’s value-added tax system, the rate could climb to 43%.
Under the base case, Goldman projects euro area gross domestic product will be 0.7% lower by end-2026 compared to a no-tariff scenario, with the bulk of the damage front-loaded into late 2025.
“We now forecast little growth for the rest of 2025, with non-annualised GDP expansion of just 0.1%, 0.0% and 0.2% in Q2, Q3 and Q4, respectively,” Pierdomenico said.
In the downside scenario, the euro area could slide into technical recession next year, with a cumulative 1.2% GDP loss relative to the no-tariff baseline. Inflation dynamics, meanwhile, are set to become more complicated.
Goldman has raised its 2025 core inflation forecast to 2.1% and warns of a potential 2.3% peak if EU retaliation compounds price pressures.
What will the ECB do next?
The European Central Bank may find itself cornered by an unfamiliar dilemma: inflation nudging up in the short term due to trade frictions, but growth grinding to a halt.
According to Goldman, the theoretical approach would suggest further monetary easing.
The firm expects ECB rate cuts in April and June, with an additional 25-basis point move in July—bringing the deposit facility rate to 1.75%.
