The economic impacts of Trump’s tariff proposals on Europe

This report examines the potential future ramifications that tariff proposals put forward by US Presidential Candidate Donald Trump in August 2024 could have on EU member states, the UK and also on China and other major emerging market economies.

The proposed tariffs, framed as measures to correct trade imbalances and protect US industries, have the potential to significantly reshape international trade relations and supply chains, with notable consequences for the EU and its trade priorities.

Key findings

• Proposed tariffs put forward by Donald Trump could reduce gross domestic product (GDP) in the United States by -0.64% and in China by -0.68%, while the European Union would face a more modest reduction of -0.11%.
• The proposed 100% tariff on imported vehicles would significantly impact the affordability of electric vehicles (EVs) in the US market, potentially slowing adoption rates and hampering efforts to reduce transport emissions, given that imported EVs currently account for approximately 30% of the US electric vehicle market.
• Within Europe, impacts would vary significantly: Germany could see a -0.23% drop in GDP, while in Italy the decrease could be negligible, at -0.01%.
• The 10% universal tariff proposal would be the most damaging for European economies, even for countries less affected overall by the full set of proposals.
• Certain European sectors, particularly Germany’s automobile exports, would be disproportionately affected and may require targeted protective measures.
• Retaliatory measures by China or the EU would likely worsen economic outcomes for all parties involved, potentially sparking a damaging trade war.
• The EU should refrain in particular from using its carbon border adjustment mechanism (CBAM) as a conduit for retaliatory measures as it would require an unrealistically high carbon price on the embodied emissions of US imports, and could weaken the acceptability of the border carbon tax for the EU’s trade partners.