We estimate a 1.3% hit to GDP over the next two years if a 25% universal tariff is imposed. Exports to the US account for about 3% of GDP, and such a jump in tariffs is likely to reduce exports substantially. For instance, the European Commission has estimated that a universal 10% tariff on all US imports (Trump’s original proposal) might reduce exports by 1/3. All in all, we judge a 25% tariff as likely to put the eurozone into a mild recession, compared to our current base case of a slowdown in growth later this year. This would not be as severe in its impact as a universal tariff on all US imports, as described in our Global Outlook.
This is because in a universal tariff scenario, global trade would see a massive shock that would have second round effects, and also, there would be less scope for a rerouting of existing trade which is otherwise likely to cushion the impact.
We also see this in the Canada/Mexico only scenario, where the EZ gets a slight GDP boost. Even in the case where all three face the new tariffs, the EZ does slightly better compared to the scenario where it is the only major trading partner hit, as its relative competitive position is affected less.- ABN AMRO
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