Trump 2.0 and Europe: Escalating tariff risks – Standard Chartered

Europe faces the threat of significantly higher tariffs under Trump 2.0 compared with Trump 1.0. Tariff escalation is likely in Q2; we outline key European exposures at the country and sector level. Hit to EU could be up to c.0.75% of GDP; negotiations and mitigations should help moderate the impact, Standard Chartered's economists Christopher Graham and Ethan Lester note. 

Europe faces the threat of significantly higher tariffs under Trump 2.0

"Trump 1.0 saw relatively contained US-led tariffs on EU markets; by contrast, Trump 2.0 is likely to result in deeper tariffs (evidenced by recently expanded steel and aluminium tariffs) that are broader in scope, given recent Trump rhetoric towards the EU and previous threats of sector-specific and reciprocal tariffs. Escalation is likely from Q2 onwards and could result in a sizeable hit to European exports and GDP."

"EU exports to the US were EUR 532bn in 2024, equivalent to 3% of EU GDP. We estimate that an across-the-board 25% tariff on EU exports could deliver a 0.50-0.75% GDP hit over a 12-month period, which is in line with independent estimates. This magnitude of impact could also result from reciprocal tariffs, assuming the US takes into account VAT and non-tariff barriers. Depending on the rates used, sector-specific tariffs (including steel and aluminium, agri-food, pharmaceuticals and autos) could limit the damage to EU GDP, although we would still expect them to affect c.30-40% of total EU exports to the US."

"The ultimate impact on EU GDP will depend on various dynamics, including US demand elasticity (which will differ by sector and product), exchange rate effects, EU retaliatory tariffs, US tariffs on other countries (given trade diversion effects) and the EU’s policy response. The fact that threats have been made but implementation has been delayed for other countries so far, supports our expectation that a negotiated solution can be reached between the US and EU; however, given the size of the EU’s bilateral surplus with the US, this outcome is not guaranteed – some form of protectionist measures seems inevitable."