The European economy, already weakened by an intensifying trade war, faces a new challenge as President Trump announced plans to impose a 30 percent tariff on goods from the European Union. Economists warn that this move could exacerbate the region's economic struggles in the coming months.
During a meeting in Brussels, European Union officials opted to delay any countermeasures while continuing negotiations in hopes of reaching an agreement before the tariffs take effect on August 1. Ursula von der Leyen, president of the European Commission, stated, “At the same time, we will continue to prepare further countermeasures so we are fully prepared. We have always been clear that we prefer a negotiated solution.”
Recent forecasts from E.U. economists indicate a downgrade in growth expectations for the 20-member eurozone in 2025, reducing the projection from 1.3 percent to 0.9 percent. The European Commission attributed this decline to the impact of increased tariffs and the uncertainty stemming from recent changes in U.S. trade policy.
Bert Colijn, chief economist at ING Bank, noted that a 30 percent tariff on European goods could keep E.U. economic growth stagnant, potentially leading to quarters of negative GDP growth. High tariffs would particularly affect several industries in Europe, including wine, luxury goods, chemicals, and pharmaceuticals, with Trump threatening 200 percent tariffs on some sectors.
Despite the grim outlook, European companies and politicians may find ways to mitigate the impact. As Trump has imposed similar tariffs on other major trading partners, U.S. importers may face higher costs across a range of goods, limiting their options. Additionally, southern European countries, which export less to the U.S., may be less affected by the tariffs compared to industrial nations like Germany and France.
Germany, which is projected to grow 1.5 percent next year, is injecting significant stimulus into its economy. Schularick indicated that the new tariffs could reduce Germany's growth by 0.5 percent but deemed the impact manageable.
Initially, Europeans faced a potential 20 percent tariff, which was later reduced to 10 percent. Many businesses had begun to operate under the assumption that this lower rate would remain. However, the latest announcement has raised concerns about the potential for greater losses, with Italy's main business lobby warning that a 10 percent tariff could cost the country 20 billion euros in exports and lead to significant job losses.
Hildegard Müller, head of the German carmakers' lobby group V.D.A., described the new tariffs as “regrettable” and urged for a swift resolution. BusinessEurope, representing Europe’s largest companies, labeled the 30 percent tariff as “unacceptable.”
Industries such as wine and agricultural products, vital to countries like France, Italy, and Spain, would also suffer under the higher tariff rate. For instance, 90 percent of French Cognac production is exported to the U.S. Recently, the E.U. reached an agreement with China regarding brandy exports, addressing another significant market for Cognac producers.
In response to the tariff announcement, French President Emmanuel Macron called for Europe to consider retaliatory tariffs on American imports if the 30 percent rate remains. Spanish Prime Minister Pedro Sanchez echoed this sentiment, emphasizing that “economic openness and trade create prosperity,” while unjustified tariffs threaten to destroy it.