A recent report has sounded the alarm about the potential economic fallout from rising tariffs between the United States and Europe. Published by the American Chamber of Commerce to the European Union (AmCham EU), the report warns that escalating trade tensions could disrupt an economic relationship worth a staggering $9.5 trillion per year. This economic fracture could have dire consequences, affecting everything from production costs to exports and investments.
The Risk of Retaliation: A Detriment to Both Economies
The report calls on the U.S. to engage in negotiations with the EU, instead of imposing punitive tariffs that would damage both economies. Malte Lohan, the president of AmCham EU, argues that a constructive dialogue is necessary to prevent the situation from spiraling out of control. This comes as a response to recent policies enacted by U.S. President Joe Biden, which include increased tariffs on steel and aluminum from the EU and the introduction of “reciprocal tariffs.” According to the Chamber, these measures could weaken transatlantic trade relations, a relationship that is critical to both regions’ economic well-being.
Increased Production Costs in the U.S.
The most immediate impact of these new tariffs is the increase in production costs in the United States. With European producers supplying roughly 20% of the U.S.’s steel and aluminum imports, U.S. manufacturers would face higher prices for these materials. These materials are essential in numerous products, including electronics, automobiles, and industrial machinery, all of which are key to American production. Moreover, this price hike is expected to trickle down to finished products in the U.S. market, which could negatively affect American consumers.
Reciprocal Tariffs: A Risk for American Companies
The imposition of reciprocal tariffs on European imports could also have serious consequences. The European Union currently imposes a 1% higher tax than the U.S. on chemicals and pharmaceuticals. Should the U.S. match this, it could significantly impact American industries that rely on European chemicals as key production inputs. Industries such as plastics, pharmaceuticals, and agriculture would face higher production costs, putting pressure on their profit margins and potentially slowing down economic activity.
Declining Exports to Europe
American exports to Europe could also see a dramatic decline. With rising tariffs on European products, American consumers may face more expensive European goods, reducing demand. On the flip side, European countermeasures against U.S. products could make it harder for American businesses to access European markets. This is particularly concerning for states like Texas, which saw $96.9 billion in exports to Europe in 2023, and California, with $35.3 billion. Industries most vulnerable to these retaliatory measures include energy and digital services. Europe accounted for 55% of U.S. LNG exports in 2024, and is the largest market for U.S. crude oil exports. The digital services sector, where U.S. tech giants hold a strong position, would also face challenges due to the EU’s significant share in global export markets.
Uncertainty and Falling Investments
Beyond tariffs, President Biden has threatened to impose additional tariffs on sectors such as automobiles, semiconductors, and pharmaceuticals. This uncertainty has already begun to weigh heavily on businesses in both the U.S. and Europe, leading to caution when it comes to future investments. The prospect of negotiations by product and country only adds to the confusion, further complicating the landscape for companies trying to anticipate future costs.
The report from AmCham EU highlights the potential long-term impact of these rising trade tensions: a drag on investment, higher costs, and a strained relationship that could eventually lead to deteriorated economic ties. In a global economy that thrives on interconnected markets, the consequences of a prolonged trade war could be far-reaching, not only for the U.S. and Europe but for the world at large.
As the situation continues to unfold, it remains to be seen whether both sides will back down or double down on their respective positions. What is clear, however, is that a trade war between these two economic powerhouses could have profound consequences, altering the course of international trade for years to come.
