EU officials and European Central Bank (ECB) policymakers have warned that the protectionist policies from the incoming U.S. administration will hamper global growth, and Europe must be better prepared than in 2018.
The warning comes as Donald Trump has just been re-elected as US President and will return to the White House at the end of January 2025. US President-elect Donald Trump has proposed a tariff of 10% or more on all goods imported into the United States, which is Europe’s main trading partner.
The US and Europe have long had close economic ties through international trade, although, in recent years, the trade balance has tilted in Europe's favour.
Accordingly, in 2022, the US imported goods and services worth 723 billion USD from the EU. Exported goods and services were worth 592 billion USD to the EU, resulting in a trade deficit of about 131 billion USD with the EU.
In 2023, the US was the EU's largest export partner for goods (19.7%) and the EU's second-largest import partner (13.7%).
The US-EU trade escalated after Washington imposed 25% and 10% tariffs on steel and aluminium imports from the EU, starting on May 1, 2018.
In response, on June 22, 2018, the EU imposed a 25% duty on a range of US products worth more than 3 billion USD.
The bilateral trade tensions continued to increase after that, with a series of retaliatory measures.
Trump's trade protectionist policies were an important aspect that he mentioned during his presidential campaign. During the recent election campaign, Trump continued to express his stance in the economic field to reduce the US trade deficit by increasing trade barriers.
Trump's re-election and his public consideration of the idea of applying a 10% universal tariff on imports from all foreign countries, including the EU, could impact the trade relations between the US and the EU.
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European Commissioner for Economy Paolo Gentiloni (Photo: THX/VNA) |
European Commissioner for Economy Paolo Gentiloni said that the countries most affected by the potential increase in US tariffs would be Germany and Italy because they exported the most to the United States. He said tariffs would compound the problems manufacturers in the two EU countries were already facing.
He noted tariffs could also hurt the US economy by stoking inflation, with all its consequences.
The high level of integration between the EU and US economies has helped stabilise the trade relationship between the two sides economically and politically.
Although there are trade disputes and regulation differences, the EU and the US still maintain common interests in protecting high standards, ensuring fair competition and stabilising global markets.
If the US turns to trade protectionism, this is said to cause serious damage to both economies and significantly impact the world economy.
Bank of Finland Governor Olli Rehn said that increasing tariffs on imported goods to the US could have negative ramifications for the world economy, even risking a new trade war in the context of increasingly fierce geopolitical competition, and Europe needs to prepare for this situation.
Meanwhile, Robert Holzmann, the governor of Austria's central bank, has warned that if the US implements trade barriers, it could lead to higher US interest rates and inflation. This could also put upward pressure on prices in other places.
Holzmann argued that if the dollar firms and approaches parity against the euro, that would have a measurable impact on import costs, especially for energy, making it harder for the ECB to reach its 2% inflation target and potentially delaying the process.
As two of the world’s largest economies, the US and the EU have long maintained a deep economic relationship, especially for trade in goods and services, as well as foreign direct investment.
However, in recent years, the bilateral relationship has experienced many challenges and has been dominated by global crises such as the COVID-19 pandemic and the conflict in Ukraine.
As both a NATO ally and a major trading partner of the US, the EU is in a difficult position when it has to find a way to maintain its commercial autonomy while still reconciling its strong security and defence relationship with its ally.
