Trump tariffs: Does the EU have to fear a trade war with the US?
Following Donald Trump’s reelection, numerous European businesses are concerned about the potential for new tariffs that might trigger a trade war. Is this reaction an overstatement, or should the EU enhance its preparedness?
Donald Trump has consistently championed tariffs as his go-to economic strategy, almost like his favourite accessory. During his first term as U.S. President, he slapped tariffs on imports like washing machines, solar panels, steel, and aluminium — pretty much everything except the kitchen sink. These measures affected countries worldwide, regardless of whether they were on his Christmas card list. In his latest presidential campaign, Trump promised to roll out even more tariffs, aiming to boost American manufacturing jobs — and maybe his own collection of “Made in the USA” ties. As he gears up to be inaugurated as the 47th President, Trump has proposed a 10% tariff on all U.S. imports, with a potential hike to 20%. And in a move that might make even the Great Wall blush, he suggested a whopping 60% tariff on Chinese imports, continuing his focus on trade imbalances and domestic economic growth. Who knew tariffs could be so…trump-tastic?
EU as a ‘mini China’ for Trump
Former President Trump has frequently focused on China in his trade policies, but he has also criticized the European Union, labelling it a “mini China.” In late October, he cautioned that the EU would eventually face repercussions and announced plans to introduce the “Trump Reciprocal Trade Act.” During a rally in Pennsylvania, he highlighted trade imbalances, stating, “They don’t accept our cars. They don’t buy our farm products. Yet, they sell millions of cars in the United States. No, no, no. They will have to pay a substantial price.” This statement underscores his administration’s stance on addressing perceived unfair trade practices by implementing measures that would require other nations to provide reciprocal access to American products.
numerous commonalities and face substantial economic stakes. A potential tariff dispute between the US and the EU could have detrimental effects on the American economy. If the US imposes unjustified tariffs, it could trigger retaliatory counter-tariffs from the EU. This would result in European goods becoming more expensive for American consumers, leading to increased prices and contributing to inflationary pressures. Furthermore, the imposition of high US tariffs on Chinese goods could have unintended consequences for Europe. If China finds itself unable to export to the US, it might redirect its surplus products to Europe, risking market saturation and disrupting European industries. This shift could lead to increased competition for European manufacturers, potentially resulting in lower prices for consumers but also threatening local businesses and jobs. The interconnectedness of global trade means that actions taken by one major economic player can ripple across the globe, affecting various markets and economies. For instance, European companies that rely heavily on exports to the US might experience a decline in revenue, impacting their ability to invest and grow. This, in turn, could affect employment rates and economic stability within the EU. Moreover, the uncertainty surrounding trade policies can lead to volatility in financial markets, as investors react to potential changes in trade dynamics. This volatility can have a broader impact on economic confidence, influencing everything from consumer spending to business investment decisions. To mitigate these risks, it is crucial for both the US and the EU to engage in constructive dialogue and seek mutually beneficial solutions. Strengthening trade relationships through negotiations and agreements could help prevent the escalation of trade tensions and promote economic stability. By working together, both regions can ensure that their economic ties remain strong and resilient, fostering growth and prosperity on both sides of the Atlantic.
The European Union exports way more to the United States than it imports, creating a trade imbalance that’s as lopsided as a seesaw with an elephant on one side. Despite this, both regions have plenty in common and share big economic stakes. If the US and EU end up in a tariff tiff, it could spell trouble for the American economy. Imagine the US slapping unjustified tariffs on the EU; it’s like poking a bear with a stick. The EU might just poke back with counter-tariffs, making European goods pricier than a gourmet avocado toast for American consumers, leading to price hikes and inflationary headaches.
Meanwhile, if the US decides to play hardball with China by imposing high tariffs, Europe might end up with more Chinese goods than it knows what to do with. It’s like inviting a friend over and they bring their entire extended family. This could flood European markets, causing chaos for local industries. Sure, consumers might enjoy lower prices, but local businesses might feel like they’re playing a game of musical chairs with fewer chairs.
In the grand soap opera of global trade, one major player’s actions can send shockwaves around the world. European companies that rely on selling to the US might see their profits nosedive, affecting their ability to throw money into growth and innovation. This could lead to job losses and economic hiccups in the EU, leaving everyone scratching their heads.
And let’s not forget the financial markets, which react to trade policy changes like a cat to a laser pointer. This volatility can shake economic confidence, influencing everything from how much people spend on their morning coffee to how businesses plan their next big move.
In her message congratulating Trump on his recent victory, European Commission President Ursula von der Leyen reminded him of their common trans-Atlantic ground as more than just allies.
“We are bound by a true partnership between our people, uniting 800 million citizens,” she wrote. “Millions of jobs and billions in trade and investment on each side of the Atlantic depend on the dynamism and stability of our economic relationship.”In her message congratulating Trump on his recent victory, European Commission President Ursula von der Leyen highlighted their shared trans-Atlantic foundation that goes beyond mere alliance. "We are united by a genuine partnership between our people, connecting 800 million citizens," she wrote. "The vitality and stability of our economic relationship support millions of jobs and billions in trade and investment on both sides of the Atlantic."
“Trump tariffs are a serious threat to the European economy, and especially export-oriented countries such as Germany,” said Niclas Poitiers, a research fellow at the Bruegel think tank who specializes in trade and international economics.
“Europe’s economy is still reeling from its misguided decision to buy its energy from Russia and suffering from falling demand from China. The Trump tariffs further darken its economic outlook,”
Clemens Fuest, president of the Munich-based Ifo Institute, an economic think tank, warned of “a distinctly protectionist agenda based on higher import tariffs and greater restrictions on international trade, particularly for China and potentially also Europe,” in a press release the day after the election.
The Ifo Institute calculated that a 20% duty on imported goods could cause German exports to the US to fall by around 15% and cause €33 billion ($35.3 billion) in economic damage.
The Cologne-based German Economic Institute calculated that a trade war with 10% tariffs on both sides could cost the German economy €127 billion over Trump’s four-year term in the White House. Tariffs of 20% could cost the German economy €180 billion.
Keeping out foreign-made goods
The EU is already suffering from slow growth. Germany, its largest economy, is currently heading for its second straight year of contraction and is particularly dependent on vehicle exports for growth. New US tariffs would make matters worse.
The EU needs to enhance its own competitiveness, strengthen defense capabilities and address challenges posed by China, according to a dossier published by the Federation of German Industries. The priority should be preventing new tariffs in the first place. If that doesn’t work then countermeasures will be needed, but they will require a united front from all 27 EU member states.
Trump believes tariffs are an effective tool to advance his domestic manufacturing goals and provide leverage in international negotiations, said Penny Naas, a public policy expert at the German Marshall Fund of the United States in Washington D.C.
The president-elect sees tariffs as an effective way to rebalance trade deficits and his top tariff priorities are likely to be steel, automotive and goods that contribute significant manufacturing jobs to the US, said Naas.
