At the start of the year, markets dismissed the prospect of US tariffs as mere threats rather than economic realities. But the new Trump administration’s first decisive moves – targeting China, Canada, Mexico, and soon, Europe – have shattered that assumption.
Tariffs now sit at the heart of US economic strategy, blending commercial, industrial, social, and political objectives under a ‘let’s make a deal’ doctrine.
The creation of a dedicated tariff collection service, ostensibly to fund domestic tax cuts, signals the policy’s permanence. Yet history warns that tariffs are inherently ‘stagflationary’, as they raise costs, distort supply chains, and inject uncertainty into the global economic cycle.
Beyond economics, tariffs serve as a geopolitical lever. With the eurozone running a USD 250 billion trade surplus with the US, Washington sees an opportunity to extract concessions from one of its largest trading partners, and not just in trade, but potentially in areas such as peace with Russia, the reconstruction of Ukraine and Eastern Europe, European defence, trade ties with China, and digital sector regulation.
Uncertainty more than tariffs themselves is the true threat to investment and growth. If the global economy stumbles, it may not be trade flows but business confidence that takes the biggest hit.
As in 2018, the eurozone’s response to rising US tariffs may be gradual as it looks to avoid a full-scale trade war.
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