The potential imposition of tariffs on European goods by the incoming Trump administration has raised concerns among European policymakers, with European Central Bank (ECB) board member Piero Cipollone warning that these measures could weigh on the eurozone's economic growth and inflation. In a speech at the Centre for European Reform, Cipollone acknowledged the potential impact of Trump's tariffs on the European economy.



Cipollone's remarks come amidst growing uncertainty surrounding the Trump administration's trade policies. The proposed 10% tariff on EU goods could significantly impact European exports, particularly in trade-dependent sectors like autos and chemicals, which account for nearly 90% of EU's transatlantic exports. According to ABN Amro, this could shave approximately 1.5 percentage points off European growth, translating to a potential €260bn economic loss based on Europe's estimated 2024 GDP of €17.4tn.

European producers and exporters may respond by curtailing capital expenditures, as seen during previous trade tensions. Specifically, the chemicals and automotive sectors, particularly German automakers, are at risk. A 10% tariff could reduce GDP in Germany by approximately 0.5% (Natixis). In response to these developments, the ECB may need to reconsider its monetary policy stance, potentially dialing back restrictive measures to support growth, given the risk of stunting investment and productivity.

In addition to the economic impact, retaliatory tariffs by the EU could exacerbate the situation, leading to further disruptions in US-EU trade relations. If the EU imposes countermeasures, European exporters may face higher costs, leading to slower exports to the US and reduced growth. This could further disrupt established economic ties between the US and EU, potentially resulting in a damaging trade war.

To mitigate the potential job losses and GDP decline, European countries can adopt proactive strategies such as reshoring production and fostering new trade partnerships. Reshoring production, or bringing back manufacturing activities to Europe, can help reduce dependence on global supply chains and create local jobs. Additionally, fostering new trade partnerships can diversify export markets, spreading risk and reducing reliance on the U.S. market.

In conclusion, Trump's proposed tariffs pose a significant threat to the European economy, with potential consequences for economic growth and inflation. The ECB may need to adjust its monetary policy to support the economy in response to these developments. European countries should also consider proactive measures to mitigate the potential job losses and GDP decline, such as reshoring production and fostering new trade partnerships.