A trade war with the US could cost the EU up to €1.1 trillion ($1.25 trillion) over the next four years if Donald Trump proceeds with proposed tariffs, according to a study by the German Economic Institute (IW).
Earlier this month, the Trump administration announced a sweeping 20% tariff on all EU goods and a 25% tariff on all car imports in a bid to eliminate what Washington sees as a large trade deficit with the bloc. Brussels was set to introduce 25% retaliatory tariffs on US imports before Trump announced a 90-day pause on most tariffs to allow for negotiations.
If an agreement is not reached and US tariffs are imposed, the EU’s cumulative costs are estimated to range between €780 billion ($886.5 billion) and €1.1 trillion ($1.25 trillion) from 2025 to 2028, depending on the scenario, the study released on Thursday said.
The institute also projects that Germany’s GDP could slump by 1.2% annually during the same period under tariffs. If trading partners respond with similar measures, the costs for Berlin could rise to 1.6%, according to the report.
Germany’s economy, already facing challenges, is expected to grow by only 0.1% in 2025 after two consecutive years of contraction. The IW forecasts a total economic output loss of €180 billion (around $205 billion) by 2028 for Germany, primarily due to export losses and declining investments.
The US was Germany’s largest trading partner in 2024, with bilateral trade totaling €253 billion ($287.5 billion). A trade conflict could significantly impact key sectors, including automotive and pharmaceuticals, experts have warned.
The IW also pointed out that although the tariffs have been suspended for 90 days, uncertainty remains high, hitting global investment planning.
European Commission President Ursula von der Leyen earlier proposed a “zero-for-zero” tariff agreement to eliminate duties on industrial goods between the EU and the US. However, Trump rejected the offer, stating it was insufficient and demanded that the EU commit to purchasing $350 billion worth of American energy to receive tariff relief. Trump has criticized the EU’s trade practices, asserting that the bloc is “very bad to us” and highlighting the US trade deficit as justification for his stance.
Officials from Washington and Brussels met for trade talks earlier this week, but made little headway in resolving their differences. US officials signaled that most tariffs on EU goods are likely to remain in place, according to Bloomberg.
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