Trump's tariffs hurt the US more than Europe

Trump's comprehensive retaliatory tariffs are hitting Europe hard – but they could backfire on the US economy. On Wall Street, stocks plummeted to their sharpest since 2020.

US President Donald Trump announced on Wednesday the introduction of flat tariffs of 20 percent on goods from the EU and a minimum levy of 10 percent on all other imports. According to several studies published on Thursday, the eurozone is likely to suffer less economically this year than the US itself.

Analysts also warn that Trump's protectionist stance and political unpredictability could encourage profound shifts in the global economic order. These could fundamentally alter the transatlantic relationship, accelerate the emergence of a multipolar world, and challenge the dominance of the US dollar.

Thursday's announcement was a "massive regime change" that could potentially herald "the end of the American century," said Sony Kapoor, professor of geoeconomics at the European University Institute.

“Any reasonably prudent company, person, country or bloc should now think about diversifying its economic, financial and security relationships away from the US,” he said.

Alluding to such future efforts, EU Commission President Ursula von der Leyen said on Thursday that the EU wants to “build bridges” to other nations that believe in “fair and rules-based trade.”

At the same time, Deutsche Bank significantly revised its growth forecasts downwards: For the Eurozone, it now only expects gross domestic product to increase by 0.25 to 0.50 percent (previously 0.8 percent), and for the USA, it lowered its forecast from 2.2 to one percent.

The US think tank The Conference Board also forecasts a decline in GDP for the EU of only 0.2 percentage points – compared to a decline of 1.2 percentage points in the US.

Kapoor assessed the impact of the new tariffs on Europe as "serious, but not life-threatening." However, the already strained economic situation in the eurozone—due, among other things, to high energy prices, weak demand, and competition from China—exacerbates the risk of a recession.

"Is this good news for the global economy, for the eurozone, for India or China, or for anyone else? Absolutely not. Is there a risk of a new global economic crisis? Hardly. But the risk of a recession in the eurozone is rising—especially because Europe isn't in good shape anyway."

Stock markets also reacted differently: The US benchmark index S&P 500 lost 4.10 percent by Thursday evening, while the European STOXX Europe 600 declined by only 2.57 percent. Since the beginning of the year, the S&P is down 7.33 percent, while the STOXX is up 2.44 percent.

Impact on US and China relations

According to analysts, Trump's policies could also lead to a fundamental change in the EU-US relationship.

Since returning to the White House in January, Trump has repeatedly criticized the EU's " absolutely brutal " trade surplus with the US, questioned Washington's security guarantee for Europe, and even threatened to annex Greenland .

“We are moving toward a world where the transatlantic alliance will no longer be the same as it was before the Trump administration,” said Mujtaba Rahman, Europe director at the Eurasia Group.

Rahman added that Trump had already caused significant "damage" to EU-US relations on security, economic, and political levels. "Fundamentally, both sides are moving toward a new equilibrium," he said.

The impact on relations between the EU and China, however, is less clear. Von der Leyen warned on Thursday of the danger that China could increasingly divert goods to the European market as a result of the US tariffs.

In 2024, the EU's trade deficit with China rose from €291 billion to €304.5 billion. At the same time, China's global trade surplus reached a record high of $1 trillion, fueled by subsidies for green technologies such as solar panels, electric vehicles, and wind turbines.

The EU's trade deficit with China increased from € 291 billion in 2023 to € 304.5 billion in 2024.

“I am very concerned that China’s huge export surplus will now bounce off the US and be redirected to the remaining large open market – that is, Europe,” said Sander Tordoir, chief economist at the Centre for European Reform.

However, Tordoir also pointed out that future dumping from China – combined with a possible “massive” devaluation of the renminbi and weak European demand – suggests that “disinflationary forces could outweigh inflationary ones” in the future.

Carsten Brzeski , head of macroeconomics at ING Research, shared this assessment. He suggested that China and other countries could be forced to lower their prices to increase their exports to Europe.

“As counterintuitive as it may sound, in the long run a full-blown trade war is likely to have a disinflationary effect on Europe,” Brzeski said.

Deutsche Bank maintains its inflation forecast for the Eurozone at 2.2 percent for 2025 and 1.9 percent for 2026, but expects US inflation to rise from 2.7 percent to four percent.

Dollar in danger

Analysts also see Trump's policies as a potential threat to the US dollar's status as the global reserve currency. Since the end of World War II, this role has provided the United States with exceptionally favorable credit conditions.

Since the beginning of the year, the dollar has lost approximately 5.93 percent against other currencies. The euro gained 1.23 percent to $1.10 on Thursday alone.

"There are several factors that contribute to the dollar's dominance in the global financial system—including the rule of law and regulatory predictability," Rahman said. "If these foundations are actively undermined, it naturally poses risks to the dollar's long-term hegemony."

Tordoir agreed that “pressure could be put on the dollar,” but stressed that the US would not lose its “exorbitant privilege” as the issuer of the world’s reserve currency overnight.

"It's a realistic scenario," he said. "But I don't think it will happen overnight."

[MK/KN]