Trump tariffs: Does EU have to fear trade war with US?

Donald Trump loves tariffs. In his first term in office as US president, he introduced a slew on washing machines, solar panels, steel and aluminum imports that hit countries around the world — political ally or not. 

During the most recent presidential campaign, he promised even more. Now, in just over two months, the self-declared "tariff man" will be sworn in as the 47th president.

In a bid to bring manufacturing jobs back to America, Trump had considered adding a 10% tariff on all imports into the US, then upped that to 20%. Anything from China would be hit with a devastating 60% duty.

EU as a 'mini China' for Trump

Trump has focused a lot of attention on China, but has also called the EU a "mini China." In late October, he warned that the bloc would pay in the end and promised to pass the "Trump reciprocal trade act."

"They don't take our cars. They don't take our farm products. They sell millions and millions of cars in the United States," he said at a rally in Pennsylvania. "No, no, no. They are going to have to pay a big price."

The European Union does sell far more to the US than it buys from it, but the two have a lot in common and a lot to lose.

A tariff conflict between the US and the EU could also turn into a problem for the US economy. Unprovoked US tariffs would undoubtedly lead to retaliation through counter-tariffs. This would make European goods more expensive for American consumers, push up prices in general and contribute to inflation. 

High US tariffs on Chinese goods could also hurt Europe. If China can no longer export to America, it will look to Europe to dump goods, possibly flooding the market.

In her message congratulating Trump on his recent victory, European Commission President Ursula von der Leyen reminded him of their common trans-Atlantic ground as more than just allies. 

"We are bound by a true partnership between our people, uniting 800 million citizens," she wrote. "Millions of jobs and billions in trade and investment on each side of the Atlantic depend on the dynamism and stability of our economic relationship."

Trump 2.0: The price of US protectionism

Trump's proposed economic policies will pose major problems for the European Union, and for Germany in particular, experts have said. Such US tariffs would likely lead to retaliation in the form of counter-tariffs.

"Trump tariffs are a serious threat to the European economy, and especially export-oriented countries such as Germany," said Niclas Poitiers, a research fellow at the Bruegel think tank who specializes in trade and international economics.

"Europe's economy is still reeling from its misguided decision to buy its energy from Russia and suffering from falling demand from China. The Trump tariffs further darken its economic outlook," Poitiers told DW.

Clemens Fuest, president of the Munich-based Ifo Institute, an economic think tank, warned of "a distinctly protectionist agenda based on higher import tariffs and greater restrictions on international trade, particularly for China and potentially also Europe," in a press release the day after the election.

The Ifo Institute calculated that a 20% duty on imported goods could cause German exports to the US to fall by around 15% and cause €33 billion ($35.3 billion) in economic damage.

The Cologne-based German Economic Institute calculated that a trade war with 10% tariffs on both sides could cost the German economy €127 billion over Trump's four-year term in the White House. Tariffs of 20% could cost the German economy €180 billion.

Keeping out foreign-made goods

The EU is already suffering from slow growth. Germany, its largest economy, is currently heading for its second straight year of contraction and is particularly dependent on vehicle exports for growth. New US tariffs would make matters worse.

The EU needs to enhance its own competitiveness, strengthen defense capabilities and address challenges posed by China, according to a dossier published by the Federation of German Industries. The priority should be preventing new tariffs in the first place. If that doesn't work then countermeasures will be needed, but they will require a united front from all 27 EU member states.

Trump believes tariffs are an effective tool to advance his domestic manufacturing goals and provide leverage in international negotiations, said Penny Naas, a public policy expert at the German Marshall Fund of the United States in Washington D.C.

The president-elect sees tariffs as an effective way to rebalance trade deficits and his top tariff priorities are likely to be steel, automotive and goods that contribute significant manufacturing jobs to the US, said Naas.

Big tariffs among friends?

"Trump is a deal-maker, and he has used the threat of tariffs to extract concessions from trading partners in the past," Naas told DW. She wouldn't be surprised if countries with trade deficits have already begun conversations with the incoming administration to buy more from the US.

Bruegel's Poitiers stressed that Trump's tariffs won't lead to the end of globalization and trade, as some already fear.

However, the coming Trump presidency could mark the end of US-led globalization, said Poitiers. Despite this, most countries are still interested in cooperation and working together. Importantly, he said, the EU must stop stalling deeper economic integration.

"Europe now has to build coalitions with like-minded countries to preserve its prosperity, which is very much founded on trade," said Poitiers.

Edited by: Ashutosh Pandey