The proposed tariffs by the United States President-elect Donald Trump will hit Europe by weakening economic growth and result in a lose-lose situation for both sides of the Atlantic, European officials and experts have said.
In a recent interview with the Financial Times, Christine Lagarde, president of the European Central Bank, cautioned against Trump's blanket tariff of up to 20 percent on all U.S. imports, saying a "trade war at large" was "in nobody's interest" and would lead to "a global reduction of GDP".
Taking aim at Trump's claims that he could "make America great again", the ECB chief said: "How do you make America great again if global demand is falling?"
According to the European Commission, the executive arm of the European Union, the trade in goods and services between the U.S. and EU stood at 1.54 trillion euros ($1.62 trillion) in 2023, with both being each other's largest trading partner.
Lagarde said Europe should offer to buy certain things from the U.S. to avoid pure retaliation, which can lead to a tit-for-tat process where no one is really a winner, as the ECB's Vice-President Luis de Guindos said earlier that Trump's tariff policy risked setting off a vicious cycle of trade wars.
This could weaken growth, push up inflation, and impact financial stability in a "lose-lose" situation for everyone, he told Finnish newspaper Helsingin Sanomat.
Mao Xuxin, a senior economist based in London, said if Trump's tariffs are implemented, the U.S. nominal GDP growth would decrease by around 1.3 to 1.8 percentage points over the next two years, and in the scenario of the tariffs being met with retaliation by other countries, the global GDP will decline immediately by around 0.7 percent.
Top victim list
With more than three-quarters of their exports going to the U.S., Mexico and Canada will be the most affected, but the top 10 victim list also includes small open economies like Switzerland and some Eastern European countries which are highly sensitive to the trade of manufactured goods, such as Hungary and Poland, Mao said.
A study by the London School of Economics and Political Science on the economic impacts of Trump's tariffs proposal finds that the EU would face a more modest reduction of 0.11 percent in its GDP, and certain sectors, particularly Germany's automobile exports, would be disproportionately affected.
The study also said that retaliatory measures by the EU would likely worsen economic outcomes for all parties involved, potentially sparking a damaging trade war.
Andras Savos, president of the German-Hungarian Chamber of Industry and Commerce, told Reuters last month that the tariff policy would deal a blow to the German economy and have a knock-on effect on Hungary.
German auto exports to the U.S. were worth $24.6 billion in 2023, while Poland, Romania, the Czech Republic, Slovakia and Hungary exported car parts worth $19.9 billion to Germany, figures from Eurostat show.
"If the German economy is struck, this will affect us (Hungary) exponentially," Savos said, adding that planned investments in Hungary were on an "astonishing" nosedive.
Clare Lombardelli, a deputy governor of the United Kingdom's central bank, the Bank of England, holds a similar view that Trump's tariffs could dent productivity throughout the world, even in nations that are not directly subjected to tariffs.
"They (trade barriers) certainly are negative for growth in the short, medium and long term," said Lombardelli in her interview with the FT after Trump vowed to impose 25 percent tariffs on imports from Mexico and Canada.
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