President-Elect Donald Trump has made it clear that his favorite word for his second term will be tariffs.
Even though we do not know the specifics yet, it seems potential tariffs may go up to 60% from China and other countries will see tariffs increasing up to 20%. Logically, everyone is now talking about how damaging this will be for China, as some factories have to relocate in order to be competitive and in some cases may go out of business. However, during my research, I did find out there is another party that arguably may be the biggest loser from the trade wars: Europe.
Most G7 countries’ export-to-GDP ratio is as large as 30%, where the U.S. is only 11%, so many developed countries are quite vulnerable to any disruption in trade. Since we do not know the exact volume and number of tariffs that are coming to which country, it’s hard to speculate. However, some models show that European nations may lose up to $38.6 billion, where China may lose up to $34.2 billion.
Germany stands to lose from new tariffs.
Germany is a top five exporter to the U.S. and will be in big trouble as they are already having a government crisis and Germany’s economy already shrunk this year with last year’s GDP contracting by 0.3%. For the last eight years, China was Germany’s top trading partner, but this year the U.S. replaced China and by losing market share of its largest trading partner, it will be very difficult for Germany to replace the U.S. Car exports and parts are one of the main commodities to the U.S. and some estimates say that potential tariffs may hit car companies close to 32% and the pharmaceutical sector by 35%.
The U.K., Italy, and Ireland also stand to lose from new Trump tariffs.
Like Germany, the U.K.’s economy is currently struggling and on the verge of contraction. In the last quarter, the U.K.’s economy slowed by 0.1% where it was 0.5% the previous quarter. Based on a report from the Centre for Economics and Business Research, potential tariffs from U.S. may cost the U.K. up to $25 billion and reduce its GDP close to 1%. The main industries that will be affected by this are mining and petroleum.
As seen in the below graph, Italy and Ireland are also quite vulnerable to President-Elect Trump’s tariffs as they are the top two and three exporters, respectively, to the U.S. In 2023, Italy exported $72.9 billion of goods to the U.S. with the main products being cars and passenger and cargo ships. Industries that might be badly affected by tariffs are machinery, fashion, chemicals, and transportation. Ireland also is a major exporter to the U.S. where its main commodities are pharmaceuticals, optical and medical products and beverages. It relies on the U.S. heavily with its exports with 30% of its goods sent to the U.S. annually.
To sum up, the E.U.’s top exports to the U.S. are machinery and vehicles where the E.U. had a trade surplus of 102 billion euros, followed by chemicals with a trade surplus of 58 billion euros. In 2022, the U.S. imported $553.3 billion of goods from Europe with 12.8% increase in year over year. China in contract in 2022 exported $551 billions of goods to the U.S., a little less than European Union did.
