A fresh take on trade conflicts: Experts warn that Trump's tariffs could harm the US economy more than EU's
Increase in U.S. Suffering Due to Trump's Tariffs, Reveals Study, More Than European Union Suffers
In the heat of the trade battle with the US, economic experts are urging the EU to take decisive action. The EU should swiftly pursue new trade agreements with other countries, as experts believe that US tariffs might have a more detrimental impact on the US economy compared to the European one.
German and French economists are urging the EU to lead the charge in defending the global trading order. In a joint statement with the French Conseil d'analyse économique and the Franco-German Council of Economic Experts, they stress that the EU must support European companies whose access to US markets is restricted.
The Long-lasting Effect of a 10% Base Tariff on the US
These economists predict a high likelihood that the 10% base tariff imposed by the US will remain in place. Their analysis indicates that the economic consequences for the US are expected to be heavier than for the EU. According to their calculations, the US real GDP could potentially be 0.36% smaller in the long run due to these tariffs. The unemployment rate might increase by 0.35 percentage points, and payroll employment could decrease by 456,000 jobs by the end of 2025.
Consumer prices could surge by 1.7%, translating to a loss of purchasing power equivalent to $2,800 per household (pre-substitution). Post-substitution, the price increase settles at 1.4%, or a $2,300 loss per household. While manufacturing sectors could expand, other sectors, such as construction, agriculture, and mining, could contract.
The EU's Response and Strategies
The EU should use the 90-day suspension of parts of US tariffs to sign the trade agreement with the Latin American Mercosur countries and to push for trade agreements with other countries, the economists suggest. They also advocate for decisive countermeasure should the US reinstitute threatened tariffs. These measures could include restricting access to the EU market, regulatory measures for digital services, and counter-tariffs on US products.
Economist Gabriel Felbermayr has recently called for more free trade agreements for the EU, highlighting that the Mercosur agreement is almost ready to be signed, and negotiations with India and Australia are also well advanced.
The Road Ahead
If the US imposes permanent base tariffs, both the US and EU economies could face significant challenges, with potential for trade disputes and economic restructuring. European businesses might need to adjust their supply chains and strategies to mitigate the impact, while EU policymakers might consider adjusting trade policies to protect European interests. Overall, the EU should focus on economic resilience by fostering internal markets and trade agreements with other regions.
Sources: ntv.de, jpe/dpa
- Trade Conflicts
- Tariffs
- US Economy
- EU Economy
- Free Trade Agreements
- Global Value Chains
- Supply Chain Diversification
- Trade Policy Adjustments
- Donald Trump
- The EU, advised by economists, should strategically pursue new free trade agreements with countries like Mercosur and others, as these agreements could provide a buffer against potential harm from the US's existing tariffs, particularly considering the likelihood of the 10% base tariff remaining in place.
- As the EU contemplates its response to US tariffs, policymakers might need to consider adjusting their employment policies to protect European businesses, which could face supply chain challenges and maybe compelled to readjust their strategies in the face of ongoing trade conflicts between the US and EU.
