Economic Analysis: Examining Potential Impacts of a Trade Conflict with the U.S. - Analysis: Potential Economic and Trade Consequences of a Customs Dispute with the U.S.
A looming trade dispute between the USA and the EU, particularly involving substantial tariffs, could negatively impact Germany's economy and specific industries like pharmaceuticals, automotive, and machinery, according to a study commissioned by the Foundation for Family Businesses.
The study presents a grim outlook for these sectors, highlighting that a "trade war" scenario, where the US imposes a 25% tariff on all goods imported from the EU and the EU retaliates in kind, could result in a 43% decrease in German exports to the USA, a 3.2% decline in total German exports, and a 0.2% drop in Germany's GDP. The pharmaceutical sector could face the most significant long-term production cuts (-8.7%), followed by the motor vehicle (-4.1%) and machinery (-3.8%) sectors. Regions with a strong presence of these industries would be disproportionately affected.
Rainer Kirchdörfer, a board member of the Foundation for Family Businesses, expressed concern over the use of tariffs as a means of pressure, leading to massive uncertainty among companies. He urged the EU to pursue a comprehensive trade deal with the USA boldly and wisely, as it could potentially increase Germany's GDP by 0.6% in the long term.
The study, conducted by Gabriel Felbermayr of the Vienna Institute for International Economic Studies and a team from the Kiel Institute for the World Economy, examines various scenarios of an escalation of EU-US trade tensions, with a focus on family-owned German companies. The authors describe the current global trade environment as "chaotic weeks," characterized by high uncertainty due to actions by US President Donald Trump.
While a comprehensive trade deal would offer some relief, the study also warns of the potential negative impacts of tariffs, such as increased costs for consumers and businesses, affecting demand and supply chains. As tensions persist, there is a risk of tit-for-tat retaliation between the EU and the US, deepening the negative economic impacts on both sides.
The research also suggests that these tariffs, although initially generating revenue for governments, would lead to negative dynamic revenue effects due to reduced economic output. Additionally, affected sectors could face increased unemployment and reduced payroll employment.
In light of these findings, it is crucial for all parties involved to strive for a resolution that minimizes trade disruptions and safeguards economic prosperity for all. The potential consequences of a prolonged trade conflict underscore the need for political leadership and diplomacy to navigate this complex and evolving situation.
- The employment policy in EC countries, particularly in sectors like pharmaceuticals, automotive, and machinery, could be significantly affected by the looming trade dispute between the USA and EU, potentially leading to increased unemployment and reduced payroll employment.
- The finance sector might also be impacted, as increased costs for consumers and businesses due to tariffs could affect demand and supply chains, potentially affecting investment and business growth.
- In the long term, a comprehensive trade deal between the USA and EU could potentially increase GDP in EC countries, such as Germany, if pursued boldly and wisely. However, without such a deal, the employment policy in these countries could be severely impacted.
- The current global trade environment, marked by actions of US President Donald Trump, has created a state of high uncertainty, leading to massive uncertainty among companies, which could negatively impact employment policy in all involved countries. Therefore, political leadership and diplomacy are needed to navigate this complex and evolving situation.
