The EU is increasingly reliant on the US export market, making it vulnerable to the potential shocks of Trump’s trade policy.
Donald Trump has a trade trick up his sleeve that he insists he’s not afraid to use if re-elected in November: a universal tariff of up to 20% on all foreign-imported products.
“Outside of love and religion, it’s the most beautiful word there is: tariff,” Trump told a North Carolina rally on Monday.
A tariff is a tax levied on foreign goods as they enter a country, with the domestic importer expected to foot the bill, at least on paper.
Trump has threatened to levy a 60% duty on Chinese products and up to 200% on cars produced in bordering Mexico.
The Republican hopeful is counting on the trade tool to propel homegrown US businesses, create jobs and shrink the federal deficit through extra tax revenues.
But his critics at home are warning that the economic burden of such tariffs could be passed on to American consumers, while allies abroad — including in Europe — fear the collateral damage of Trump’s tariffs could be devastating.
What would happen to EU-US trade?
The EU-US trading relationship is the most valuable in the world, worth around €1 trillion in goods and services annually.
The EU benefits most from trade in goods, posting a surplus of €156 billion last year alone, against a deficit in services of €104 billion.
A blanket tariff of 10% or 20% would make it more expensive for American companies to import EU goods, meaning EU exports across the Atlantic could plunge by as much as a third in some sectors, according to the most radical economic estimates.
Sectors such as machinery, vehicles and chemicals — which together made up 68% of EU exports to the US last year — would be hardest hit.
It would make Germany, the European bloc’s economic powerhouse, especially vulnerable to shocks, given its reliance on US exports in these sectors.
Could it push the EU into recession?
While economists disagree on the extent of the damage, most agree Trump’s tariffs would deal a devastating blow to Europe’s economy.
An across-the-board tariff of 10% would lower the Eurozone’s GDP by 1%, according to Goldman Sachs estimates. More radical predictions say Trump’s tariffs would make Eurozone growth 1.5% lower by 2028. Such a scenario would push the economy – which is already under pressure – to the brink of a recession.
Other economists estimate that a 10% tariff could at worst slice off up to 1.6% of Germany’s GDP, while the impact on other major economies such as Spain would be considerably lower at 0.5%.
The after-shocks could also include job losses. Transatlantic trade and investment is estimated to directly support around 9.4 million jobs in both the EU and the US, according to European Commission estimates.
But the bloc has been reinforcing its trade defence arsenal in recent years, including in response to the steep tariffs imposed by Trump on €6.4 billion in EU steel and aluminium during his first presidency.
The trans-Atlantic trade truce that temporarily resolved that Trump-era dispute is due to expire on March 21, 2025, just two months before the next US administration takes office.
Would a trade war be inevitable?
Trump’s vow to slap a 60% tariff on Chinese imported goods poses a real risk the EU could be dragged into an all-out trade war.
“A tariff on Chinese goods entering the US would inevitably cause many products to be redirected to the European market,” André Sapir, a senior fellow at Bruegel and former economic advisor to European Commission President Romano Prodi, told Euronews.
“The EU would need to respond to that with retaliatory measures. It would need to protect itself.”
It could see trade tensions between Brussels and Beijing, which have escalated after an EU decision to impose steep tariffs on China-made electric vehicles, flare up even more.
“The EU hasn’t been doing what the US has in terms of decoupling from China and reducing imports. This is one of the few things that’s been keeping the European economy afloat,” Zach Meyers, assistant director at the Centre for European Reform (CER), explained.
“But how long will the US continue to allow Europe to straddle both horses at the same time? I think it’s a difficult question,” he added.
Could the EU negotiate an exemption?
The bloc would likely look to strike a deal with Trump before opting for retaliatory tariffs, analysts say.
“The EU and others will be keen to offer Trump a carrot, something to give him the facade of saying that he’s gotten away with a huge success,” Meyers said.
“This is exactly what we saw under the Trump presidency, where you had both the Commission President and Chinese leaders signing these agreements to buy up American goods.”
Trump’s own economic advisors could consider limiting his tariff ambitions to avoid potential economic turmoil at home.
Economists say the move would inevitably lead to a spike in inflation and that US importing firms could decide to pass on the cost of tariffs to American citizens.
