Tectonic plates have shifted, triggering new waves of shocks—shocks that transcend the boundaries of the United States. Newly-elected President Donald Trump was crystal clear about his protectionist policies. On one occasion, he expressed his love for tariffs, remarking, “Outside of love and religion, it’s the most beautiful word there is: tariff.” However, the outcomes of these policies are yet to be seen. The best we can do is to anticipate how Europe will be affected by the upcoming tariffs under Trump’s presidency.
How valuable is the EU-US trading commitment?
It is worth noting that the EU-US trading relationship is the most valuable in the world, amounting to €1 trillion in goods and services annually, with the EU benefitting from an annual surplus of €156 billion in goods, according to recent estimates. These numbers, however, are about to change.
Could it push the EU into recession?
Economists have sounded the alarm, warning that Europe must brace itself for a devastating blow to its economy, foreseeing the repercussions of Trump’s tariff plans. Goldman Sachs estimated that an across-the-board 10% tariff could potentially lower the eurozone’s GDP by 1%, whereas a more radical prediction estimated a decrease of 1.5% by 2028. For an economy already stretched thin by the ongoing Russia-Ukraine war and post-pandemic recovery, an additional blow from tariffs could push it to the brink of recession. Christine Lagarde, President of the European Central Bank (ECB), has also rebuked tariffs. While expressing her views at an Atlantic Council Front Page event, she remarked, “Trade barriers, whether they are tariff or non-tariff barriers, are likely to have a negative impact on growth. I think it would have an impact on inflation as well—and not one that would be particularly welcome.”
Is negotiating an exemption an option for the EU?
The EU cannot and should not afford to lose a time-tested ally by resorting to retaliatory tariffs against the US. Hence, analysts are of the view that “The EU and others will be keen to offer Trump a carrot, something to give him the façade of saying that he’s gotten away with a huge success,” Meyers said. However, cozying up to the US could potentially drag the EU into an inevitable trade war, particularly as Trump has vowed to impose a 60% tariff on Chinese imported goods.
As André Sapir, a senior fellow at Bruegel, expressed, “A tariff on Chinese goods entering the US would inevitably cause many products to be redirected to the European market.” This would place the EU in a difficult position, potentially forcing it to decouple from China and follow the US approach. It would not be long before the US expects the EU to refrain from straddling both horses at the same time.
With Trump’s trade tariffs and aggressive protectionist policies, a bandwagoning effect is likely to follow, leaving the EU in a position where every choice comes with significant costs.
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