US president’s plan could prove to be an economic shock to both blocs, German thinktank says. Donald Trump’s threatened 25% tariffs on EU imports could trigger “economic turmoil”, sharply push down growth and send inflation soaring, according to a German thinktank.
The Kiel Institute said the US president’s promise on Wednesday that he would impose the levies “very soon” was a profound moment in the postwar relationship between Washington and Brussels and could prove to be an economic shock to both parties.
It found that EU exports to the US would drop by between 15% and 17%, leading to “a significant” 0.4% contraction in the size of the EU economy, while American GDP would shrink by 0.17%. Worse for the US would come from tit-for-tat tariffs by the EU, which would double the economic damage and push inflation up by 1.5 percentage points, the thinktank said.
German manufacturing exports to the US would be the worst hit, dropping by almost 20%, the institute added. Julian Hinz, Kiel’s head of trade policy, said: “European economies aren’t exactly performing well right now, so while the damage to the overall EU economy might seem small, it comes at a bad time.
“And for manufacturing it will be much worse. And especially the German car industry, which will suffer a big drop in exports when many firms are already struggling.”. The economic impact on the EU could be lessened by higher US fees on imports from rival markets. On Thursday, Trump announced that from 4 March he would go ahead with 25% levies on goods from Mexico and Canada and double the supplementary tariff on Chinese products to 20%.
Canada and Mexico had understood that commitments made earlier this month to help secure their borders with the US had meant they would avoid Trump’s threats of extra tariffs. Hinz said he would be re-running the simulation exercise to take the new measures into account, but it was already clear that US consumers would be among the biggest losers.
Sign up to Business Today. Get set for the working day – we'll point you to all the business news and analysis you need every morning. after newsletter promotion. He said: “Goods from even more countries will have tariffs and will cost more in the US,. And there will be a greater impact on imports from Canada, Mexico and China than we previously calculated, creating a bit more of a level playing field with the EU.”.
EU officials have indicated they will respond to any tariffs on goods exports to the US with their own protectionist policies. Hinz pointed out that even if the tariffs were called off, there would still be economic harm. He said: “The uncertainty surrounding which of these measures will actually be implemented makes it difficult for businesses to plan ahead. This unpredictability alone could slow investment, disrupt supply chains and dampen economic growth on both sides of the Atlantic.”.
