Impact of US Tariff Policies on European Economy

This technical report discusses the potential effects of proposed US tariff policies on the European economy, particularly in light of Donald Trump's election. It outlines how a blanket tariff of 10% on US imports of European goods could reduce Eurozone GDP by 0.3% to 1.0%. The report also considers the implications of targeted trade disputes, estimating a GDP impact of 0.1% to 0.4%. The inflationary effects are described as ambiguous, with potential increases due to a weaker euro and trade uncertainty, countered by decreased economic activity. The report highlights that countries like Germany, Belgium, and the Netherlands may face the most significant challenges due to their trade intensity with the US. Furthermore, it notes the expected response of the European Central Bank (ECB) to these developments, suggesting a more aggressive easing of monetary policy. The report concludes by addressing the broader implications for European defence spending and economic policy adjustments in response to changing trade dynamics.