The European Union (EU) faces significant economic concerns as the United States (US), its most important trade partner, threatens to impose more tariffs on European goods. In 2023, EU exports to the US reached a value of 504 billion euros, representing 20% of all extra-EU exports. The EU economy depends directly on the US market for 1.7% of its own economic activity. This crucial connection is in serious jeopardy if the proposed tariffs are allowed to take effect. Ireland and Germany, especially, are severely exposed, with possible economic fallout that could reverberate throughout the continent.
The Significance of US-EU Trade Relations
The cordial relationship with the US is characterized by high economic interdependence. The US is still the EU’s most important trading partner, highlighting the strategic importance of their transatlantic trade ties. In 2023, the EU exported a staggering 504 billion euros in goods to the US. This amount constitutes about 30% of all EU external trade activities. The United States today only accounts for about 20% of all extra-EU exports. This makes clear the vital importance that this partnership has to the economic fabric of Europe.
The domestic value-added content in US exports is stunningly high. This point underscores the deep interconnection between the two economies. At first glance, the EU economy has a relatively lower direct exposure of only 1.7% to US markets. The proposed tariffs could have a much wider and more damaging economic effect. The interconnected nature of global supply chains means that any disruption could magnify across various sectors, affecting not just bilateral trade but internal economic stability.
Potential Economic Consequences for Ireland and Germany
Ireland also comes out as one of the most vulnerable EU member states to these tariff threats. Irish trade is indeed heavily focused on the US, with 46% of Ireland’s trade not involving the EU going to the US. This high economic exposure is equal to 9.7% of Ireland’s GDP. Ireland is deeply dependent on US markets. Thus, any imposition of tariffs would abruptly and drastically undermine the country’s fiscal well-being.
Germany has a huge starring role in this drama. A whopping 158 billion euros, or 31% of its extra-EU trade, goes directly to the United States. Germany, Europe’s largest economy, would be particularly vulnerable to such punitive US tariffs. These tariffs would have spectacularly negative impacts not only in Germany, but throughout the entire EU economy. Such a 25% tariff would reduce the EU’s real GDP in the short run by 0.33%. In the long run, this reduction could increase up to as high as 0.87%.
The implementation of American tariffs is the negative shock that can set this in motion, potentially amplifying through multiplier effects. These indirect effects further amplify the direct long-term effects on GDP. Together, they pose a dramatically big headwind to Europe’s economic path.
Broader Implications and Industry-Specific Impacts
Ireland and Germany most recently are facing severe crises due to their large trade dependence on the US. In comparison, Spain and France would only experience a small negative impact on their GDP. This does not mean there won’t be devastating industry-specific repercussions that may come from raising tariffs.
The European Union must remain vigilant as it navigates these challenges, as any escalation in tariffs could disrupt various sectors reliant on transatlantic trade. All industries highly dependent on US markets must re-evaluate their supply chain practices. They need to be prepared to reexamine their pricing approaches, as trade dynamics evolve in new and unexpected ways.
The combined added value—or GDP exposure—of all EU Member States’ total direct exports to the US is calculated to be 1.9%. This relatively new metric helps show how embedded and dependent our economy sectors are on keeping channels of free-flowing trade open with our American partners.