US-EU Trade Tensions Mount: 30 Per Cent Tariff Could Reshape Eurozone Policy

Europe may be staring at a major trade upheaval as US President Donald Trump’s threat to impose a 30 per cent tariff on EU goods casts a long shadow over one of the world’s largest bilateral trade relationships.

If implemented by the 1 August deadline, the move could derail $1.7 trillion worth of transatlantic commerce and force the EU to reconsider its export-reliant economic structure, reported Reuters.

Meeting in Brussels on Monday, European ministers voiced hopes of de-escalating tensions and striking a deal before time runs out. But the unpredictable shifts in Trump’s stance towards the European Union — swinging between praise and accusations of hostility — have kept the risk of punitive tariffs very much alive.

“It will be almost impossible to continue the trading as we are used to in a transatlantic relationship,” said EU trade commissioner Maros Sefcovic, who briefed the 27 EU member states. “Practically, it prohibits the trade.”

Economic Fallout Could Be Deep and Wide

A 30 per cent tariff would hit major EU export sectors such as pharmaceuticals, automotive goods, machinery, and wine. Analysts at Barclays warn that a full-scale tariff scenario — with the US imposing 35 per cent and Brussels retaliating with 10 per cent — could reduce eurozone GDP by 0.7 percentage points, severely undercutting already tepid growth.

The European Central Bank may be forced to adopt a more accommodative stance, with its deposit rate potentially falling to 1 per cent by March 2026.

Germany, whose economy is worth €4.3 trillion, stands to lose over €200 billion by 2028 under a 20 to 50 per cent tariff regime, according to the IW economic institute. Chancellor Friedrich Merz acknowledged the risks, saying, “We would have to postpone large parts of our economic policy efforts because it would interfere with everything and hit the German export industry to the core.”

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Long-Term Risks to Jobs and Investment

Beyond the immediate damage, the EU must now confront the longer-term question of how to replace lost economic activity, tax revenue, and jobs. Although the bloc has signed preliminary deals under its trade diversification policy, delays in finalising key pacts like the EU-Mercosur agreement have underscored the challenge of securing new markets.

“The EU does not have different markets to pull up to and sell into,” said Varg Folkman of the European Policy Centre, highlighting the slow pace of conventional trade deals. Internally, reforming the single market has proved difficult, with the IMF estimating that national-level barriers within the EU act like a 44 per cent tariff on goods and 110 per cent on services.

For now, the EU continues to express willingness to negotiate, while preparing retaliatory measures if talks break down. Some analysts believe the uncertainty could indirectly affect US domestic policy as well. “The latest developments on the trade war suggest that it will take more time to get a sense of the 'landing zone' on tariffs... which of course raises uncertainty for everyone, including the Fed,” said AXA’s chief economist Gilles Moec.

As the clock ticks down to August, the outcome of this standoff could have sweeping consequences for both economies.

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