The Euro Area is preparing for potential economic challenges as Donald Trump’s second term could bring renewed U.S. tariffs. The Institute of International Finance (IIF) estimates that these tariffs may reduce the Euro Area's GDP by 0.4%. This comes at a time when many European countries are still recovering from the pandemic and facing growing competition from China. According to the IIF, the economic impact could be “substantial,” particularly for nations heavily reliant on transatlantic trade.
Germany, France, and Italy are expected to bear the brunt of these changes. Germany, the U.S.’s largest exporter in the Euro Area, faces zero economic growth for the second consecutive year. The country’s machinery and industrial goods exports could be significantly affected. Italy’s exports in similar sectors are also vulnerable. France, meanwhile, risks a 4% decline in exports from key industries such as aerospace and luxury goods over Trump’s term, according to the IIF.
While the potential damage is clear, the timeline for implementing tariffs remains uncertain. Trump’s statements on trade policies often make headlines quickly, but the actual rollout of tariffs tends to take weeks or months. This lag depends on how actively the administration leverages tools like the International Emergency Economic Powers Act. “Trump’s tariff threats and their execution don’t always align,” notes the IIF, pointing to his previous term when he backed down from a proposed tariff on Mexico after the country agreed to tougher border controls.
Analysts also suggest that the impact of Trump’s plans will vary, with some initial threats being toned down or adjusted during negotiations. However, industries across Europe are bracing for potential disruptions, particularly as the U.S. administration hints at more protectionist policies.
The situation remains fluid, and all eyes are on how these policies evolve in the coming months. European exporters and governments must navigate these uncertainties while balancing the need for economic recovery and competitive positioning on the global stage. As the new administration lays out its strategies, the Euro Area will be closely monitoring developments, including Trump’s communication channels like Truth Social, for further indications of policy direction.