The much-awaited 2 April—dubbed “Liberation Day” by the Trump administration – has arrived, with Washington poised to unveil sweeping new tariffs on its main buying and selling companions, inserting the European Union instantly within the firing line.
Newest studies counsel the brand new duties might attain as excessive as 20% on all imports, concentrating on a variety of sectors from automobiles to prescription drugs. If enacted, the transfer would mark a pointy escalation in transatlantic commerce tensions, and probably ship a heavy blow to Europe’s already sluggish industrial momentum.
However simply how extreme might the financial fallout be for Europe and which nations could be hit hardest?
In 2024, the European Union exported €382 billion price of products to america, information from the Worldwide Commerce Centre exhibits.
The US accounted for 12% of the EU’s whole exterior demand, making it the bloc’s largest single export market.
Making use of a flat 20% obligation throughout these flows might translate into an €85bn direct decline in exports—although the oblique affect might run deeper as larger costs dent American demand.
Nowhere is the chance extra acute than within the automotive sector, a conventional pillar of European business and an emblem of Germany’s export-led mannequin. In 2024, EU automobile exports to the US amounted to €46.3bn.
These might now face mixed tariffs of as much as 45%, 20% beneath Trump’s new measures and a pre-existing 25% levy introduced earlier in March.
At that charge, the brand new duties might make European autos largely uncompetitive in American showrooms elevating the prospect of a near-total collapse in European automotive shipments.
“Tariffs on automotive exports current a serious problem for Germany’s financial system,” mentioned Daniel Parker, economist at Capital Economics.
“Stuttgart, Higher Bavaria and the Braunschweig area—which incorporates Wolfsburg—are more likely to undergo essentially the most pronounced impacts.”
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These areas aren’t solely house to Mercedes-Benz, BMW and Volkswagen manufacturing hubs, however in addition they function crucial nodes within the international auto provide chain.
Their crops are deeply built-in with US meeting operations, and their seaports—notably Hamburg and Bremerhaven—deal with vital volumes of outbound shipments to the American market.
The ripple results go far past Germany. Slovakia, house to Kia and Volkswagen factories in areas corresponding to Nitra and Zilina, is extremely uncovered. So are automotive clusters in Hungary’s Gyor and Austria’s Linz and Graz.
Any disruption to German exports might cascade throughout Central Europe’s extremely specialised provider community.
Prescription drugs, the EU’s most profitable export class to the US, are additionally in danger.
The sector notched up a document commerce surplus in 2023, with exports to America accounting for almost 15% of whole gross output. Eire and Denmark led the cost, pushed by the surging success of corporations like Novo Nordisk.
Since 2022, Danish industrial output has been buoyed by Novo Nordisk’s blockbuster weight-loss medicine corresponding to Ozempic. US demand alone generated two-thirds of its income in 2023.
However that very success could now invite retaliation. Experiences circulating in Washington counsel a focused levy on semaglutide—the energetic ingredient in Novo’s remedies—could possibly be on Trump’s radar, ostensibly to strain Denmark over geopolitical points like Greenland.
“One technique might contain imposing a selected levy on semaglutide, the important thing ingredient in Novo Nordisk’s weight-loss medicine, which might disrupt Danish exports whereas benefitting US opponents,” Parked mentioned.
Goldman Sachs’ economist Giovanni Pierdomenico sees broad macroeconomic penalties.
Within the agency’s baseline state of affairs, new tariffs would elevate the common efficient obligation on EU items to twenty% from the present 7%. In a extra opposed case, which incorporates US changes for Europe’s value-added tax system, the speed might climb to 43%.
Underneath the bottom case, Goldman tasks euro space gross home product will probably be 0.7% decrease by end-2026 in comparison with a no-tariff state of affairs, with the majority of the harm front-loaded into late 2025.
“We now forecast little progress for the remainder of 2025, with non-annualised GDP growth of simply 0.1%, 0.0% and 0.2% in Q2, Q3 and This fall, respectively,” Pierdomenico mentioned.
Within the draw back state of affairs, the euro space might slide into technical recession subsequent yr, with a cumulative 1.2% GDP loss relative to the no-tariff baseline. Inflation dynamics, in the meantime, are set to change into extra difficult.
Goldman has raised its 2025 core inflation forecast to 2.1% and warns of a possible 2.3% peak if EU retaliation compounds worth pressures.
The European Central Financial institution could discover itself cornered by an unfamiliar dilemma: inflation nudging up within the brief time period resulting from commerce frictions, however progress grinding to a halt.
In line with Goldman, the theoretical strategy would counsel additional financial easing.
The agency expects ECB charge cuts in April and June, with a further 25-basis level transfer in July—bringing the deposit facility charge to 1.75%.
