Donald Trump’s plan to impose 25% tariffs on European Union (EU) imports could cause serious economic disruption. A report from the Kiel Institute warns that the move may shrink both the EU and US economies, push inflation higher, and destabilize global trade. The think tank describes this as a major shift in US-EU relations, with long-term consequences for businesses and consumers.
Economic Shock for the EU and US
The Kiel Institute estimates that EU exports to the US could drop by 15% to 17%. This decline would reduce the EU’s overall GDP by 0.4% and cut the US economy by 0.17%. The situation could worsen if the EU retaliates with its own tariffs, potentially doubling the economic damage and raising US inflation by 1.5 percentage points.
German manufacturing, particularly the car industry, would suffer the most. Exports to the US could decline by nearly 20%, hitting an industry already facing economic challenges.
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Wider Impact of Tariffs
Trump’s announcement also included new tariffs on Mexico, Canada, and China. From March 4, he plans to impose 25% levies on Mexican and Canadian imports and double tariffs on Chinese goods to 20%. These measures complicate trade relationships and could increase costs for American businesses and consumers.
Julian Hinz, head of trade policy at the Kiel Institute, warns that these tariffs will make goods from more countries more expensive, creating economic strain in the US. He suggests that while the EU may be hit hard, Mexico, Canada, and China could face even greater losses, which might slightly balance the playing field.
EU’s Likely Response
European officials have indicated they will retaliate if Trump follows through with the tariffs. Potential countermeasures could include their own tariffs on American products, further escalating trade tensions.
Even if the tariffs are eventually scrapped, the uncertainty surrounding them has already caused economic harm. Businesses struggle to plan ahead, delaying investments and disrupting supply chains. This unpredictability could slow economic growth on both sides of the Atlantic.
Uncertain Future for Global Trade
With tensions rising, the global economy faces an uncertain future. If both sides enforce new tariffs, companies and consumers will bear the financial burden. Higher costs, inflation, and reduced trade could create long-lasting instability.
While the full impact remains to be seen, one thing is clear: Trump’s tariff policies are reshaping international trade, and the consequences will be felt worldwide.
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