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An Ebro employee works on assembling a car in Barcelona. Reuters
Europe in Trump's Crosshairs: How Would His Tariffs Affect It and What Can It Do to Defend Itself?

Europe in Trump's Crosshairs: How Would His Tariffs Affect It and What Can It Do to Defend Itself?

Germany would be the hardest hit, but no country would be spared. The solution lies in diversification.

Zigor Aldama

Domingo, 2 de febrero 2025, 12:30

A signature is yet to be placed on the decree, but Donald Trump has already warned the European Union that it is in his sights and could be subject to tariffs similar to those he has approved to tax products from Mexico, Canada, and China. Specifically, he threatens a 10% tax that could jeopardise various economic sectors in Europe. According to Goldman Sachs economist Sven Jari Stehn, the measure could reduce the EU's GDP by 1%. Germany would be the most affected, with a contraction of 1.1%, while Spain would fare better with a loss of 0.6%.

Trump holds the upper hand because, as with the Asian giant, the EU sells much more to the United States than it buys. Specifically, according to official statistics, last year the American superpower purchased European products worth nearly $700 billion, $233 billion more than the value of its exports to the EU. It is a substantially favourable trade balance for the Old Continent, leaving Brussels with less room to manoeuvre for retaliation. Even if it imposes similar tariffs on US exports, the overall damage would always be less.

The Automotive Industry Trembles

The most vulnerable sectors are also some of the most important for Europe. The automotive industry is the best example. In 2023, European companies exported vehicles and components to the United States worth $56 billion, a figure that accounts for 20% of the total and makes the United States the main destination for our automobiles.

Considering that the sector employs about 13.8 million people directly and indirectly, and is already going through a delicate moment due to the transformation of mobility and stagnant sales, the problem could transcend commercial issues and fully impact the social sphere. Oxford Economics estimates that Trump, dissatisfied because "Europeans do not buy American cars," could raise the current 2.5% tariff on European cars to 25%.

"This would substantially increase their price in the American market, reducing their competitiveness and resulting in a sharp contraction of European automotive exports to the United States," analyses the British institution, which quantifies the impact of this scenario: the most affected would be the German automotive industry, with a 7.1% drop in its exports, while the sector would see a 2.4% contraction in our country.

Problems for Spanish Agriculture

In the case of Spain, the main export items to the United States in 2023 were metallurgical products - which were already taxed by Trump during his first term - chemicals, and food. The country's agriculture has its seventh largest market across the Atlantic - with a value of $3.178 billion - and there is concern about the impact these still hypothetical taxes could have on wine and olive oil. Not surprisingly, animal and vegetable fats ($829 million) and beverages ($441 million) are the most important agri-food exports.

Work in a vineyard in Haro. Reuters

Given the evident American capacity to inflict damage on the European economy, the Bruegel institute recommends, first of all, that the EU try to negotiate with Trump to avoid these tariffs. In other words, to seek a solution amicably. It also states that the continent must become more decisively involved in the reform of the World Trade Organization to preserve a global rules-based operation.

But, above all, Europe must seek alternatives and diversify by promoting bilateral trade agreements. It is the classic maxim of not putting all your eggs in one basket. "The priority should be the ratification of the agreement with Mercosur, but also improving trade relations with the United Kingdom and Switzerland and strengthening those with the Indo-Pacific and Africa," write the Bruegel analysts.

"The arrival of Trump 2.0 is a wake-up call for Europe," said former European Commission President José Manuel Barroso, who believes this is a good time for the continent to address "structural weaknesses." However, the major European transformation required to face the challenge posed by the US president is not cheap, which is why Barroso has already requested the European Central Bank to mobilise up to €800 billion annually to increase the EU's competitiveness. Not only because of what happens with the land of stars and stripes, but also because of the threat posed by China. "Europe has the opportunity to stop being a geopolitical adolescent and start exerting influence to match the United States and China," Barroso concluded.

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