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04 April 2025 / Essay
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Copy LinkOn the 2nd of April 2025, the US unveiled a suite of tariffs on global imports, aimed at reducing, in the administration’s view, the persistent trade deficit that the US has with several countries. The administration calculated this rate using the formula of: bilateral exports to, minus imports from, a country; i.e. the trade deficit, divided by the imports from that country.
Where this calculation led to a number smaller than 10%, a baseline of 10% was applied and will hold universally. This formula does not take into consideration the entire trade balance, but only the goods component. Also, there is no economic rationale provided for why the bilateral goods trade position divided by the amount of goods imported can be thought of as an imbalance, or how it can be used as an instrument to correct for it (i.e. a tariff).
Lastly, the data used are based on census data, not on balance of payments data, which tracks international financial flows and trade more accurately.
Table 1: Tariff Rates (Effective April 9th) for Top US Trade Partners
(Economies/countries listed in order of import volumes to the US, in dollar value)
Source: The Conference Board based on the White House
For the EU, this has led to a uniform tariff rate of 20% on all products. It is important to note that there is also a 25% tax on cars, which has already been announced. This is not in addition to the 20% imposed across all goods, as originally thought. Similarly, aluminum and steel products entering the US will continue to be subject to a 20% tariff, with no additional charges.
Finally, pharmaceutical products, accounting for almost a fifth of the EU’s total exports to the US (and almost half —42% —for Ireland), are also exempt from the 20% tariff, at least for the time being.
The Economic Effects
In the analysis that follows, we assume these tariffs would be in place for a year, and do not include any retaliation. It is, therefore, the projected global impact of US tariffs alone.
The impact on the US economy in 2025 is expected to be a reduction of -1.2% of GDP, and an increase of +1 percentage point for inflation. The countries that are hit the hardest are Mexico, Canada and China (Figure 1). The global economy will see a 0.5% reduction in GDP.
Figure 1: US Tariffs—Effects on Real GDP Growth Worldwide in 2025 (Difference from Base), Y/Y % Changes
Source: The Conference Board, based on Oxford Economics model.
The macroeconomic impact of these tariffs on EU GDP remains muted, at -0.2% of GDP in the first year, affecting the three biggest EU economies —Germany, France and Italy —in a very similar way. The country that will experience the highest impact is Ireland, at -0.6% of GDP. Although a small country, Ireland is the third largest EU exporter to the US (accounting for 10% of EU exports to the US).
Regarding unemployment, tariffs are expected to have close to no impact on EU-wide unemployment in 2025, with only small differences between countries. Germany and Ireland —the two EU economies with the deepest trade ties with the US —could see their unemployment rate rise by a mere 0.1% in 2025.
The effects on inflation are equally muted, at -0.1%. Finally, the EU’s trade surplus with the US will decline by 2.6%.
Source: The Conference Board, based on Oxford Economics model * percentage points
The European Commission is finalizing counter-tariffs in response to the aluminum and steel tariffs, and is preparing countermeasures to address the April 2nd package. The overwhelming view is to continue negotiations in order to avert a global trade war.
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