President Donald Trump’s announcement of sweeping reciprocal tariffs, significantly higher than anticipated, has created a wave of volatility in global markets. The new tariffs, which include a 20% rate on European exports to the United States, have left companies within global supply chains facing uncertainty. While European exporters brace for potential losses, consumers within the EU may experience some unexpected benefits, at least in the short term.
Under the new measures, tariffs on US imports will vary by country: China will face a 34% tariff, Japan 24%, and India 26%. Meanwhile, countries like the UK, Brazil, Australia, and Turkey will face a 10% rate, with Canada and Mexico excluded due to the USMCA agreement. The US’s trade surplus with Europe further complicates matters, as Europe exported €503.8 billion in goods to the US in 2023, yielding a trade surplus of €156.6 billion.
The introduction of a 20% tariff on EU exports to the US could have severe consequences for European exporters. Many European goods, like Parmigiano Reggiano cheese from Italy or French wine, will become 20% more expensive for American consumers, possibly diminishing their competitiveness. European cars, already burdened with a 25% tariff, could become uncompetitive due to the added 20%, effectively sidelining them from the US market.
The EU accounts for about 12% of total European exports, making it difficult for businesses to replace that demand quickly. With US demand expected to decrease, inventories may pile up in Europe, resulting in more goods available domestically. This could lead to price competition and discounts, benefiting European consumers in the short term. The EU could also see an influx of goods from countries like China, Japan, and India, who are also facing US tariffs. This surge in global supply could further push down prices within Europe.
Ironically, while the tariffs may weaken external demand, they could have a disinflationary effect within the EU, at least temporarily. For instance, key sectors such as pharmaceuticals, vehicles, luxury goods, and food and beverages—industries with significant trade surpluses with the US—may experience a drop in demand from the US. This could lead to a build-up of unsold inventory, which might drive down prices for European consumers, at least in the short term.
Furthermore, inflationary risks in Europe remain subdued. Despite the ongoing energy crisis, which has been a major inflation driver in recent years, early reactions to Trump’s tariffs have shown a decrease in energy prices. Crude oil prices dropped by over 3%, and natural gas prices fell by 2% in response to anticipated slowing global demand due to reduced trade activity. Meanwhile, the euro has strengthened against the dollar, rising by more than 1.5%, reaching a six-month high.
In conclusion, while the new US tariffs threaten to disrupt European exports, European consumers could find themselves on the receiving end of some unexpected advantages, including potential price reductions in key sectors. Despite the economic uncertainty, the impact of these tariffs may not result in the inflationary pressures once feared.
