Europe’s economy is under attack from all sides
arguing recently in The Economist that even more brutal tariffs might be “necessary". Lighthizer’s heavy blow The German Economic Institute, a think-tank, has calculated the possible impact. Imagine America applies 10% tariffs on its imports and punishes China with even higher tariffs.
America’s own economy would take a hit, via higher consumer prices—but Europe’s would be hurt more. Germany’s total exports would be nearly 5% lower by 2028 than in a world with no new American tariffs. Private investment would also be hit.
As a result, German GDP would be 1.2% lower, equivalent to a cumulative loss of €120bn-worth of output by 2028. A Trump administration might go even further, seeking to retaliate against Europe for its digital-services taxes, which target American tech firms, or for refusing to toe the president’s line on China. Meanwhile, when it comes to tensions between China and the EU, tit-for-tat probes into subsidies and dumping will probably become common.
The Chinese government, for example, has a clear idea who is behind the EU’s EV probe: it has started an anti-dumping probe into French cognac. France has designed its own ev subsidies for consumers to exclude Chinese brands; Chinese firms offer customers a rebate of the same magnitude, in what one analyst calls “a single-finger greeting to Mr Macron". The combination of energy, China and Trump shocks could lead to an extended period of restructuring in the European economy.
For the continent’s consumers, this would be a mixed blessing. Trade wars make goods pricier and reduce choice, but when China subsidises solar panels, European utilities and households get cheaper energy. Some regions could benefit, too.
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