Trump's 30% Tariffs on EU: A Bargaining Chip or Deep Trouble?

Significance for European Union Exports

Donald Trump's administration's announcement of a 30% tariff on imports from the European Union, effective August 1st, poses a significant threat to overall EU exports. The USA is the EU's largest trading partner for goods, accounting for approximately one-fifth of all exports outside the bloc. In 2024, the EU exported goods worth €531.6 billion to the USA, representing almost 3% of the EU's total GDP. While this may not seem substantial, it is a crucial driver of GDP changes.

Raising tariff rates from the current 10% to 30% would lead to a radical increase in prices for European products, potentially resulting in a significant decline in imports. The most vulnerable sectors include pharmaceuticals (over 20% of total EU exports to the USA), automobiles (around 10%), industrial machinery (over 6%), electrical machinery (6.0%), and specialized machinery (5.0%).

The chart illustrates the importance of international trade with partners and the USA. As shown, the Eurozone holds the largest share of imports into the USA, only marginally smaller than the entire EU, which additionally includes countries like Poland, the Czech Republic, and Scandinavia. Source: Bloomberg Finance LP, XTB

Impact on European Union GDP

Economic analysis indicates a significant, yet limited, impact on EU GDP. According to Bloomberg Economics estimates, the current 10% tariffs reduce Eurozone GDP by approximately 0.3%, and the introduction of 30% tariffs could double this effect. Goldman Sachs economists estimate that if 30% tariffs are maintained for an extended period, Eurozone GDP could fall by a cumulative 1.2% by the end of 2026.

Various research institutions present similar forecasts. Bruegel estimates a 0.3% decline in EU GDP in a no-deal scenario, while the European Parliament points to a possible 0.2-0.8% decrease depending on the implementation of retaliatory measures. It is worth noting that the impact of high tariffs on GDP is still lower than previous crises, such as COVID-19 or the energy crisis of recent years. However, this impact could theoretically be long-lasting.

The EU economy will suffer from Trump's tariffs, but the current impact is limited compared to previous crises. Nevertheless, new 30% rates could double the current impact of tariffs on GDP. Source: Bloomberg Finance LP, XTB

Most Vulnerable Economies

Germany, as the largest EU economy, is particularly exposed to the effects of American tariffs. The USA absorbs 10% of German exports ($157.9 billion in 2023), representing 3.7% of German GDP. The automotive sector, crucial to the German economy, exports 13% of its production to the USA. Car exports from Germany to the USA have already fallen by 13% in April and 25% in May 2025. However, it is worth noting that current tariffs of 25% apply to car imports into the USA, meaning that the average tariff rates on imports from the EU to the USA are higher than the broad 10% rate.

Net exports to the United States from the EU in recent years. As can be seen, machinery and vehicles, followed by chemicals and pharmaceuticals, account for the largest share of exports. The EU is a net importer of raw materials from the USA. Source: Bloomberg Finance LP, XTB

Ireland is also significantly exposed, with over 53.7% of its goods exports directed to the USA. The pharmaceutical sector, which accounts for 55% of Irish exports and whose exports to the USA represent 18% of Irish GDP, is particularly at risk. For now, pharmaceuticals would be subject to lower broad rates, but Trump has threatened to impose 200% tariffs on pharmaceutical products within 12-24 months.

Just before the mutual tariffs came into effect, we saw a clear increase in imports from the EU to the USA. Will we now see another surge in demand for European products before August 1st? Source: Bloomberg Finance LP, XTB

Is This a Negotiating Tactic?

The reaction of financial markets suggests that investors primarily view the announced 30% tariffs as a negotiating strategy by Trump. The euro only weakened marginally at the open, though EURUSD has been retreating since the beginning of July. Oxford Economics analysts refer to Trump's latest moves as "tariff theatrics."

However, Trump's own words in a letter to the EU support the idea that this is merely a negotiating game: "If you want to open your previously closed trade markets to the USA and eliminate your tariffs and non-tariff barriers, we will consider adjusting the rates." Additionally, the Trump administration has repeatedly changed its stance – in May, it threatened 50% tariffs, and in April, reciprocal tariffs were to be 20%. Recently, discussions focused on maintaining a broad 10% rate.

European Union Avoids Escalation

The European Union has consistently avoided escalating the conflict. European Commission President Ursula von der Leyen announced an extension of the suspension of retaliatory measures until August 1st, allowing time for negotiations. "We have always said very clearly that we prefer a negotiated solution," von der Leyen stated.

However, the EU is preparing for the possibility of implementing retaliatory measures. Brussels has prepared retaliatory actions on American goods worth approximately €21 billion and is also preparing a second list worth €72 billion. Additionally, the EU is considering using the Anti-Coercion Instrument (ACI), the strongest trade tool in the EU's arsenal. Unofficially dubbed the "trade bazooka" or "EU bazooka" due to its wide range of retaliatory measures and potentially devastating impact on the economies of countries that use economic coercion against the EU or its member states, this instrument allows for the imposition of tariffs and trade restrictions, introduces restrictions on access to EU public procurement, which exceeds $2 trillion annually, and also imposes restrictions on trade in services and introduces export controls.

Diversification of Trade Partners

In response to trade uncertainty with the USA, the EU is accelerating the diversification of its trade relations. Von der Leyen announced the conclusion of a Comprehensive Economic Partnership Agreement (CEPA) with Indonesia and is continuing trade negotiations with India, which are expected to be finalized by the end of the year.

The EU is also strengthening cooperation with other countries affected by American tariffs, including Canada and Japan, which could lead to coordinated actions against US trade policy.

Summary

The announced 30% tariffs pose a serious threat to EU exports and economic growth, but current market reactions suggest it is primarily viewed as a negotiating pressure tool. The potential impact on EU GDP (0.3-1.2% depending on the scenario) is significant but not catastrophic. The EU is adopting a "dual approach" – continuing negotiations while preparing for retaliatory actions and diversifying trade partners. Germany is most vulnerable due to its automotive exports, and Ireland due to its reliance on the pharmaceutical sector. While the clock is ticking with two weeks left until the end of July, it's worth remembering that Trump has repeatedly changed his mind. According to many market participants, even signing an agreement with the USA guarantees absolutely nothing, as experienced by Canada and Mexico, countries that had the USMCA agreement with the USA several years ago, yet still face increased tariffs and the threat of even higher ones.

EURUSD opens with a decline at the beginning of the week but is currently returning to Friday's closing levels. The volatility itself suggests that investors do not see a real threat at this moment. It seems that, at least for now, this pair is threatened by other factors, such as changes in monetary policy or even a potential attack on the Fed, which could happen at practically any moment. Source: xStation5