The economic blow to Europe from the 20% tariffs announced by Donald Trump is severe, a fact that may lead the Old Continent to readjust its policies.
The move not only marks a sharp escalation of transatlantic trade tensions but could potentially deal a heavy blow to Europe's already sluggish industrial momentum.
In fact, Trump's tariffs on EU products could reduce exports by at least 85 billion euros, Euronews reports.
What are the implications for Europe?
In 2024, the European Union exported goods worth 382 billion euros to the United States, according to data from the International Trade Center.
The US accounted for 12%, making it the European Union's largest single export market.
Applying a flat 20% tariff on these flows could translate into a direct reduction in exports of €85 billion – although the indirect impact could be deeper, as higher prices may reduce demand in America.
Nowhere is the risk more acute than in the automotive sector, a traditional pillar of European industry and a symbol of prestige for Germany, which leads exports in this sector.
In 2024, EU vehicle exports to the US amounted to €46,3 billion. These could now face combined tariffs of up to 45%, 20% under Trump's new measures and given the 25% levy announced earlier in March.
At this rate, the new tariffs could make European vehicles largely uncompetitive on American showrooms, raising the prospect of a near-total collapse of the European auto industry.
“Tariffs on car exports pose a major challenge to Germany’s economy,” said Daniel Parker, an economist at Capital Economics.
"Stuttgart, Upper Bavaria and the Braunschweig region - which includes Wolfsburg - are likely to suffer the most intense impacts," he stresses.
These regions not only host automobile manufacturing plants but also serve as critical hubs in the global automotive supply chain.
Their factories are connected to US assembly operations and their seaports handle significant volumes of outbound shipments to the US market.
But it's not just Germany that is affected, as there are factories in Slovakia as well as specialist car repair shops in Hungary and Austria. Any disruption to German exports could spread across the highly specialised network of suppliers in Central Europe.
What do economists say?
Goldman Sachs economist Giovanni Pierdomenico sees broad macroeconomic implications as new tariffs on EU goods jump to 20% from the current 7%.
In a more unfavorable scenario, which also includes US adjustments to the European value-added tax system, the rate could rise to 43%.
Under the baseline scenario, Goldman forecasts that eurozone gross domestic product will be 0,7% lower by the end of 2026 compared to a scenario without tariffs, with most of the loss already added to the end of 2025.
In the even more negative scenario, the euro area could slip into a technical recession next year, with a cumulative GDP loss of 1,2% relative to the non-tariff baseline. Inflation dynamics, meanwhile, are set to become more complex.
It also seems likely that consumption and investment will be restrained, with all the consequences this will have on the market. In this case, a support package from the European Commission, alongside countermeasures towards the US, could help mitigate the impact on the sectors that will be most affected, as reported by Bloomberg.
In such a case, of course, the short-term impact of tariffs would be limited, but the real question remains how long it can limit the effects of demand.
At the same time, other countries hit by US tariffs, including China, may also try to increase exports to Europe by lowering prices. As counterintuitive as it may sound, in the long run, a full-blown trade war is likely to be deflationary for Europe.
All eyes will also turn to the ECB and the decisions it will make on interest rates.
In any case, it is still too early to capture the exact economic impacts of Trump's decision, given that the planet is still numb to the announcements and governments do not want to make hasty moves.
The only thing certain is that Europe will not remain unscathed.
Source: cnn.gr
