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 immediately within the firing line.
Newest experiences recommend the brand new duties may attain as excessive as 20% on all imports, focusing on a variety of sectors from automobiles to prescribed drugs. If enacted, the transfer would mark a pointy escalation in transatlantic commerce tensions, and doubtlessly ship a heavy blow to Europe’s already sluggish industrial momentum.
However simply how extreme may 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, knowledge from the Worldwide Commerce Centre reveals.
The US accounted for 12% of the EU’s complete exterior demand, making it the bloc’s largest single export market.
Making use of a flat 20% responsibility throughout these flows may translate into an €85bn direct decline in exports—although the oblique affect may run deeper as larger costs dent American demand.
Germany, Slovakia and Hungary face disproportionate blow
Nowhere is the chance extra acute than within the automotive sector, a standard pillar of European business and a logo of Germany’s export-led mannequin. In 2024, EU automobile exports to the US amounted to €46.3bn.
These may now face mixed tariffs of as much as 45%, 20% underneath Trump’s new measures and a pre-existing 25% levy introduced earlier in March.
At that price, the brand new duties may make European autos largely uncompetitive in American showrooms elevating the prospect of a near-total collapse in European automobile shipments.
“Tariffs on automotive exports current a significant problem for Germany’s economic system,” stated Daniel Parker, economist at Capital Economics.
“Stuttgart, Higher Bavaria and the Braunschweig area—which incorporates Wolfsburg—are prone to undergo probably the most pronounced impacts.”
These areas should not solely house to Mercedes-Benz, BMW and Volkswagen manufacturing hubs, however additionally they function vital nodes within the international auto provide chain.
Their crops are deeply built-in with US meeting operations, and their seaports—significantly 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 reminiscent of 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 may cascade throughout Central Europe’s extremely specialised provider community.
Prescription drugs can even really feel the ache
Prescription drugs, the EU’s most profitable export class to the US, are additionally in danger.
The sector notched up a file commerce surplus in 2023, with exports to America accounting for almost 15% of complete gross output. Eire and Denmark led the cost, pushed by the surging success of companies like Novo Nordisk.
Since 2022, Danish industrial output has been buoyed by Novo Nordisk’s blockbuster weight-loss medicine reminiscent of Ozempic. US demand alone generated two-thirds of its income in 2023.
However that very success might now invite retaliation. Stories circulating in Washington recommend a focused levy on semaglutide—the energetic ingredient in Novo’s remedies—could possibly be on Trump’s radar, ostensibly to stress Denmark over geopolitical points like Greenland.
“One technique may contain imposing a particular levy on semaglutide, the important thing ingredient in Novo Nordisk’s weight-loss medicine, which might disrupt Danish exports whereas benefitting US opponents,” Parked stated.
Goldman Sachs eventualities paint a bleak image
Goldman Sachs’ economist Giovanni Pierdomenico sees broad macroeconomic penalties.
Within the agency’s baseline situation, new tariffs would increase the typical efficient responsibility 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 may climb to 43%.
Beneath the bottom case, Goldman tasks euro space gross home product will likely be 0.7% decrease by end-2026 in comparison with a no-tariff situation, with the majority of the injury front-loaded into late 2025.
“We now forecast little progress for the remainder of 2025, with non-annualised GDP enlargement of simply 0.1%, 0.0% and 0.2% in Q2, Q3 and This fall, respectively,” Pierdomenico stated.
Within the draw back situation, the euro space may slide into technical recession subsequent 12 months, with a cumulative 1.2% GDP loss relative to the no-tariff baseline. Inflation dynamics, in the meantime, are set to turn out to be 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 value pressures.
What is going to the ECB do subsequent?
The European Central Financial institution might discover itself cornered by an unfamiliar dilemma: inflation nudging up within the quick time period on account of commerce frictions, however progress grinding to a halt.
Based on Goldman, the theoretical strategy would recommend additional financial easing.
The agency expects ECB price cuts in April and June, with an extra 25-basis level transfer in July—bringing the deposit facility price to 1.75%.
