Hours after it was revealed that Germany’s GDP had carried out unexpectedly nicely within the first quarter—largely pushed by sturdy exports—the long run prospects of Europe’s largest economic system, and certainly the broader bloc, collapsed dramatically.
US President Donald Trump misplaced persistence final Friday, stating in a social media put up that commerce negotiations with the European Union had been “going nowhere.” He threatened to impose a 50% tariff on EU items imported into america, efficient from 1 June.
Subsequently, after speaking with European Fee President Ursula von der Leyen over the weekend, he postponed imposing the big tariff till 9 July 2025, supplied no settlement is reached earlier than then.
“Europe is able to advance talks swiftly and decisively,” Von der Leyen mentioned. “To succeed in a very good deal, we would wish the time till July 9.”
What would a 50% tariff imply to the EU economic system?
Provided that the US was the most important accomplice of EU exports of products in 2024 (20.6%), price greater than €530bn in 2024, in keeping with Eurostat, the impression of such a tariff is sizeable.
Most analysts agree that it could definitely end in a recession within the eurozone, triggering the European Central Financial institution to chop the important thing rates of interest additional than beforehand anticipated.
“A 50% tariff may considerably hamper progress and immediate the ECB to proceed its financial easing,” analysts from personal banking and funding home Edmond de Rothschild mentioned in an electronic mail.
“If the US administration proceeds with its menace of fifty% tariffs on EU items, and the EU responds with a delayed and extra restricted retaliation, a extra accommodative financial coverage stance than the at present forecast can be warranted,” analysts from Barclays mentioned in an electronic mail, including that it may doubtlessly set off a deep recession within the eurozone which “would seemingly drive ECB’s charges nearer to ZLB [when short term interest rates hit zero, ed.]”.
Earlier than the US President’s menace, the European Fee lowered its financial forecast, factoring in not solely the potential 10%-20% tariffs however the main impression of uncertainty. That additionally affected the most recent eurozone PMIs, which began declining, displaying contraction in companies, whereas the manufacturing sector was holding up higher.
Nonetheless, manufacturing is among the many key sectors which can be vulnerable to endure ought to the US impose excessive tariffs on EU items.
In response to a current report by Eurostat, an important items traded by the EU and the US are medical and pharmaceutical merchandise for exports, and petroleum for imports.
The EU’s prime 5 most exported teams of products in 2024 made up half (49.5%) of all exports to america. The highest exports had been medicinal and pharmaceutical merchandise (22.5%), with their worth reaching almost €120bn final yr. This class was adopted by highway autos (9.6%), price nearly €51bn. (The EU already faces 25% US import tariffs on its metal, aluminium and vehicles.)
The European plane sector, together with Airbus, can also be anticipated to come back into the crosshairs of the US. Beforehand, the EU put Boeing on its proposed listing of US merchandise price €95bn that may very well be hit with EU counter-tariffs in case of no deal.
In complete, the EU GDP may very well be hit by 0.5%, in keeping with Maria Demertzis, the top of the economic system technique centre on the Convention Board think-tank in Brussels, cited by the FT.
She primarily based her forecast on a earlier examine by the European Fee that counted on 20% tariffs reducing EU GDP by round 0.2% yearly, pushed primarily by weaker exports.
Which EU nations are essentially the most impacted by US commerce tariffs?
The EU nations that export essentially the most to the US, subsequently essentially the most weak to such tariff hikes, embrace Germany, Eire, Italy and France.
Germany was the most important exporter of products to america in 2024, because of the excessive quantity of car exports and pharmaceutical merchandise.
Eire is especially uncovered via its pharma sector, as many such corporations have factories in Eire the place taxes are low. Italy can also be among the many weak member states, with excessive publicity in transport tools, automotive manufacturing, trend and prescription drugs.
Analysts anticipate volatility within the markets within the little multiple month left for the negotiations to yield. Beforehand, the EU confirmed indicators that the present 10% is doubtlessly going to remain. “It’s clear from our discussions with the Fee that will probably be tough to go under 10% US tariffs,” a European diplomat advised Euronews final week earlier than the US President’s newest menace.
In the meantime, the European Commerce Commissioner Maroš Šefčovič was as a consequence of converse together with his US counterparts on Monday afternoon.