Commenting on the latest threats from President Trump on his favourite topic of tariffs, Lizzy Galbraith, Political Economist at abrdn, said; “US President Donald Trump has stated that imports to the US from the EU will face a 25% tariff on cars and “all other things”.
Trump has been highly critical of EU policy in recent weeks, highlighting its regulatory and taxation policy as examples of the non-tariff barriers the US will seek to address as part of its reciprocal tariff policy. He has also continued to criticize the EU’s trade deficits and defence spending.
Tariff announcements targeting sectors of concern – steel and aluminium, autos, semiconductors and pharmaceuticals – appear likely in the coming months. Additionally, some tariffs may be proposed as part of the reciprocal tariff policy due to be implemented from 2 April 2025.
We would anticipate that the EU will seek to make concessions on tariff and non-tariff trade issues to avoid the full imposition of any tariff announcements. Other possibilities include commitments to increase defence spending, or goods purchasing agreements. As a consequence, a key assumption in our base case is that the lasting tariffs on the EU are lower than stated in initial announcements.
However, there continues to be a high level of uncertainty around the nature of the trade policy being pursued by the White House at this stage, and particularly on how the reciprocal tariff policy due to be announced on 2 April 2025 will be applied. The imposition of lasting tariffs at a significantly higher, broader level remains possible.”
Felix Feather, Economist at abrdn, added; “If 25% tariffs are imposed on some or all EU exports, the macroeconomic impact on the EU would be significant and uneven.
Our previous analysis suggested that a blanket 10% tariff would take 0.3-0.9% off the Eurozone’s GDP versus a counterfactual where no trade uncertainty arose. The impact of a 25% blanket tariff would of course be larger than this.
In our base case, the US will principally be looking to target goods for which it has a large trade deficit with the EU, but that is not reliant on the EU for supply.
Machinery and transport equipment fit this bill best, which would align with Trump’s long-standing criticism of the EU auto industry.
The US’ trade deficit with the EU in chemicals is of similar magnitude. However, the US might not choose to target this area given the importance of EU suppliers to the US market for pharmaceuticals and the political salience of drug prices.
If a final package of tariffs does include chemicals, the hit to the Eurozone could be very large indeed, approximating the effect of a blanket tariff.
Concerningly, the impact of tariffs would be most keenly felt in the Eurozone’s most beleaguered economies. Notably, Germany is very exposed to tariffs in autos and machinery.
By comparison, services-intensive southern European economies are far better insulated.
The macroeconomic implications of a 25% US tariff on the EU would be significant for the latter, especially if it covers a broad range of goods. Manufacturing intensive northern and central European member states would bear the brunt of the shock. However, broad tariffs might still be avoided if the US wins concessions from the EU in other areas.”
