Donald Trump’s recent threats of imposing sweeping tariffs on European Imports, citing the EU insufficient purchases for American exports, has revived fears about a possible trade war.
Trump has made a bold promise that if reelected, he will impose up to 20% of tariffs on foreign products. He claims this approach will protect American industries and reduce the trade gap.
Economists warn, however, that a trade rift could push the EU in to an economic downturn. This could lead to job losses and increased supply chain disruptions.
This analysis examines if the EU is really at risk of “paying a big price”, or if Trump’s claims are more about his political leverage than their economic reality.
EU’s vulnerability to Tariffs
The EU and US have a very valuable trade relationship. They exchange goods and services worth around EUR1 trillion per year.
This trade is important to Europe, especially in high-value industries like machinery, vehicles and chemicals. Nearly 70% of Europe’s exports are to the US.
According to economic forecasts, Trump’s proposed tariffs may make exports more expensive for American companies. This could reduce demand and cut EU exports to the US in certain sectors by up to one-third.
Source: Eurostat/euronews
Germany, which is heavily dependent on US demand for its manufactured products, could suffer a severe impact. It could lose up to 1,6% of its GDP as a result of such tariffs.
What is the impact of a 1% decline in the GDP of the Eurozone?
Economists are largely in agreement that the impositions of tariffs may have severe repercussions on the European economy. The European economy is already under pressure from other geopolitical issues.
Goldman Sachs, for example, projects a 1% decline in the eurozone GDP if an all-encompassing 10% tariff is implemented.
Some estimates predict even more dramatic outcomes, such as a scenario in which the eurozone’s growth could drop by 1.5% by 2028.
Transatlantic trade directly supports 9.4 million US and EU jobs. A downturn could result in widespread job losses.
US could engage in wider trade conflicts
Trump’s rhetoric suggests broader trade conflicts beyond immediate economic impacts.
His threats to impose a 60% tariff against Chinese goods could result in an influx of products being redirected to Europe, forcing the EU to impose tariffs protecting these goods.
Andre Sapir, a think tank at Bruegel, said that this change would put Brussels in a difficult position, and likely lead to retaliatory actions to defend its market.
A full-blown trade war would put these defenses to the test.
Negotiating for Political Advantage or Stability?
In response to Trump’s tariff threats, EU may seek to negotiate an exemption, similar to its approach during Trump’s previous presidency.
Zach Meyers, from the Centre for European Reform, told Euronews the EU could offer Trump concessions to allow him to declare that he has won a trade war without the economic consequences that a full-scale trading war would bring.
In past interactions, both European and Chinese leaders agreed to increase purchases of American goods. This compromise could potentially calm down Trump without escalating the tensions.
As Trump’s rhetoric intensifies, questions are raised about the long-term EU/US relationship.
While his tariffs may be framed as measures to protect American jobs and businesses they could end up destroying one of the most lucrative trading relationships in the world.
Analysts warn that Trump’s proposed trade tariffs may appeal to his base. But the potential repercussions — a weakened EU and retaliatory duties — could backfire and increase costs for US consumers, as well as impact American jobs reliant upon the transatlantic supply chain.
The “big price” Trump warns of could be felt by both sides of Atlantic.
If both economies are caught in a tit-fortat tariff trap, the global trade landscape may be affected by significant instability. This could affect not only the EU and US, but also global markets that depend on their economic partnership.
This post Will the EU “pay a huge price” for not buying enough American imports, as Trump claims? This post may be updated as new information becomes available
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