U.S. tariffs would slash euro zone’s already modest GDP growth rate

The 30% tariff on European goods threatened by U.S. President Donald Trump would, if implemented, be a game-changer for Europe, wiping out entire segments of transatlantic commerce and forcing a rethink of Europe’s export-led economic model.

Last year the U.S. – EU’s largest partner – accounted for a fifth of all EU exports. Economists at Barclays estimate an average tariff rate on EU goods of 35% including both reciprocal and sectoral duties combined with a 10% retaliation from Brussels would shave 0.7 percentage points off euro zone output. This would eat up most of the euro zone’s already meagre growth.

European ministers remain convinced they can reach a deal that would keep the USD 1.7 trillion two-way trading relationship broadly intact.

Some observers argue that the stand-off with Trump is what the EU needs to complete long-delayed reforms of its single market, boosting domestic demand and rebalancing its economy away from the exports which account for around half of output.

The International Monetary Fund has estimated the EU’s own internal barriers to the free flow of business are the equivalent of tariffs of 44% for goods and 110% for services. Suggested reforms, such as creating freer cross-border capital markets, have made little headway in well over a decade.