As Trump 2.0 becomes a reality, Europe is poised to enter a new geopolitical and trade quagmire with its biggest trading partner.
Donald Trump's victory may harm Europe's economy as proposed 10% US tariffs risk hitting European exports such as cars and chemicals, eroding Europe's GDP by up to 1.5% or about €260 billion.
Analysts warn of European Central Bank (ECB) rate cuts, euro weakness, and a recession risk.
According to several economic analyses, there is broad agreement that Trump's proposed 10% universal tariff on all US imports may significantly disrupt European growth, intensify monetary policy divergence, and strain key trade-dependent sectors such as autos and chemicals.
The long-term effects on Europe's economic resilience could prove even more significant if tariffs lead to protracted trade conflicts, prompting the European Central Bank (ECB) to respond with aggressive rate cuts to cushion the impact, according to Euronews.
Trump's proposed across-the-board tariff on imports, including those from Europe, could profoundly impact sectors such as cars and chemicals, which rely heavily on US exports.
Data from the European Commission shows that the European Union exported €502.3 billion in goods to the US in 2023, making up a fifth of all non-European Union exports.
European exports to the US are led by machinery and vehicles (€207.6 billion), chemicals (€137.4 billion), and other manufactured goods (€103.7 billion), which together comprise nearly 90% of the bloc's transatlantic exports.
ABN Amro analysts, including head of macro research Bill Diviney, warn that tariffs “would cause a collapse in exports to the US,” with trade-oriented economies such as Germany and the Netherlands likely to be hardest hit.
According to the Dutch bank, Trump's tariffs would shave approximately 1.5 percentage points off European growth, translating to a potential €260 bn economic loss based on Europe's estimated 2024 GDP of €17.4 tn.
Should Europe's growth falter under Trump's tariffs, the European Central Bank (ECB) may be compelled to respond aggressively, slashing rates to near zero by 2025.
In contrast, the US Federal Reserve may continue raising rates, leading to “one of the biggest and most sustained monetary policy divergences” between the ECB and the Fed since the euro's inception in 1999.
Dirk Schumacher, head of European macro research at Natixis Corporate & Investment Banking Germany, suggests that a 10% tariff increase could reduce GDP by approximately 0.5% in Germany, 0.3% in France, 0.4% in Italy, and 0.2% in Spain.
Schumacher warns that “the euro area could slide into recession in response to higher tariffs.”
According to Goldman Sachs' economists James Moberly and Sven Jari Stehn, the broad tariff would likely erode eurozone GDP by approximately 1%.
Goldman Sachs analysts project that a 1% GDP loss translates into a hit to earnings per share (EPS) for European firms by 6-7 percentage points, which would be sufficient to erase expected EPS growth for 2025.
