The impact on European economies
If the 10% proposed by Trump is confirmed, European growth would be reduced and the divergence of monetary policy would intensify, which would end up affecting key sectors that depend on trade, such as the automotive and chemical sectors. Prolonged trade conflicts would ensue, resulting in the European Central Bank (ECB) having to adopt aggressive rate cuts, thus mitigating the impact.
The EU exported €502.3 billion in goods to the US in 2023, a fifth of all non-European exports. Specifically, The value of machinery and vehicles was 207.6 billion euross, followed by chemical products (137.4 billion euros) and other manufactured products (103.7 billion euros), which represent almost 90% of the European bloc’s transatlantic exports.
The EU is a net exporter of merchandises, with a positive balance of about 158 billion euros in 2023. The economies that benefit the most from the US market are those of Germany, Italy and Ireland. Without going any further, in Germany exports represented 157.7 billion euros, in Italy 67.3 billion and in Ireland about 51.6 billion euros.
It is true that China has occasionally been the EU’s main goods partner, but the US continues to be Europe’s largest global trading partner, including services and investments.
Los 10% tariffs come at a critical time and maximum economic tension for Europe. Automobile exports could see a drop in demand, due to rising prices. A situation that would stagnate the sector and put employment at risk.
They also face a loss of competitiveness. It must be clarified that, due to an increase in final costs and the slowdown in production and job cuts, American consumers could turn to other markets. We must not forget thate manufacturing production in the European bloc has been considerably reduced in the last two years.
Direct economic consequences
If European economic growth is diminished by Trump’s tariffsthe European Central Bank could be forced to reduce rates to practically zero in 2025. On the contrary, the US Federal Reserve (Fed) could continue raising rates, causing a significant divergence in monetary policy never seen before since the creation of the euro.
He euro could be weakenedwhich would increase import costs. An increase in tariffs would have an impact on the reduction of GDP in the main European economies: 0.5% in Germany, 0.3% in France, 0.4% in Italy or 0.2% in Spain, among others. data. An unlimited economic recession could ensue.
On the contrary, the dollar would strengthen. The EU’s trade in services with the US is very vulnerable. You just have to see that The EU registered a deficit of 104 billion euros in 2023increasing this gap from 2021. Thus, sectors such as finance, tourism and professional services would be especially affected.
Furthermore, with almost 25% of STOXX 600 sales coming from the United States, Europe would also be vulnerable. “The consumer and technology sectors would be among the most vulnerable in our opinion.”
Where do we come from?
At the end of 2018, with Trump in powerthe EU saw Trump impose tariffs of 25% and 10% on steel and aluminum importsciting a matter of national security. The EU called it a blatant and unfair intervention. This tension resulted in a transatlantic truce that will expire on March 21, 2025.
During his tenure, Joe Biden has maintained most of the tariffs dictated by Trump, such as those that affect Spanish black olives, although he has suspended others that affect European products.
Between 2018 and 2019, companies with high exposure to US tariffs reduced investment by up to two percentage points. It is not surprising that Now the same strategy is chosen of defense.
The future is frankly uncertain, but Goldman Sachs analysts project that a 1% loss of GDP translates into a hit to the earnings per share (EPS) of European companies of between 6 and 7 percentage points, which would be enough to erase expected EPS growth by 2025.