Goldman Sachs economists estimate that President Trump’s announced tariffs on eight European countries would reduce real GDP by 0.1% to 0.2% across affected nations, though significant uncertainty remains about whether the measures will actually be implemented.
Trump announced on an unspecified recent date that the US will impose a 10% tariff on imports from Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands and Finland starting February 1.
The president plans to raise the tariff to 25% on June 1 and maintain it until the US reaches a deal to purchase Greenland.
The economists said that it remains highly uncertain whether these tariffs will be implemented. They assume the tariff would apply over and above any current tariffs.
The announced measures would hit EU member states that account for around €270 billion in annual exports to the US, representing roughly half of the EU’s total exports to America.
For Germany, the Netherlands and Finland, the affected exports would equal 3% to 3.5% of GDP if implemented as a blanket tariff on all goods exports to the US, and 1.5% to 2% of GDP if applied only to goods currently subject to US reciprocal tariffs.
The Euro area overall faces exposure worth 1% to 1.5% of GDP, while the UK’s affected exports would represent 1% to 2% of GDP.
Goldman’s analysis shows Germany would face the largest economic impact at about 0.2% of GDP if the tariff is implemented as a 10% incremental reciprocal tariff, which the brokerage considers most likely, or 0.3% if applied as a blanket tariff.
The drag could increase to 0.25% to 0.5% across countries if tariffs rise to 25%. These figures come on top of the 0.4% real GDP drag Goldman previously estimated from last year’s tariff increases.
The GDP hit could be larger if adverse confidence or financial market effects materialize, according to the report. However, the impact would be smaller if countries reroute trade through EU nations not subject to the additional tariff.
Goldman expects very small inflation effects via lower demand, assuming no retaliation. A simple Taylor rule, in which central banks respond to GDP and inflation, would point to modestly lower policy rates, all else equal.
The brokerage identifies three potential levels of EU retaliation. First, the EU could stall implementation of last year’s EU-US trade deal, as the agreed reduction of US tariffs requires ratification in the EU Parliament. Goldman sees a low hurdle for this action.
Second, the EU could impose counter-tariffs on US goods using approved lists from last year. These include a €25 billion list matching the value of US steel and aluminum tariffs, covering items such as soybeans, copper, iron, motorbikes and orange juice.
Previous EU plans targeted up to €93 billion of US imports with tariffs on aircraft, cars, agricultural products and other goods. Counter-tariffs would create modest mechanical upward pressure on European inflation, according to the report.
Third, the EU could launch the Anti-Coercion Instrument, designed for cases like this. Starting activation does not mean implementation, which requires several steps, but signals potential EU action and allows time for negotiation.
The ACI could involve policy tools broader than tariffs, including investment restrictions and taxation of US assets and services such as digital services.
Goldman views the hurdle for UK retaliation as higher, consistent with the UK’s approach during trade negotiations last year. “We would expect the UK to focus on engaging diplomatically with Trump,” the brokerage said, as suggested by Culture Secretary Lisa Nandy in a recent interview.
Source: investing