President Trump’s promise to hit the United States’ trading partners with tit-for-tat tariffs — including penalties for taxes that he claims the European Union unfairly imposes on American imports — could hardly come at a worse time for the continent.
Mr. Trump on Thursday signed a memo directing his teams to prepare by April “reciprocal” tariffs on foreign countries, essentially imposing the same level of tax on imports that those countries place on American goods. The move threatens to upset a system of global trade established at the end of World War II.
The announcement comes as Europe’s economies, including the bloc’s powerhouses, Germany and France, are suffering from lackluster growth, high energy costs and inflation challenges stemming from the war in Ukraine.
Europeans were already reeling from the United States upending the alliance on Ukraine and insisting it would dominate artificial intelligence,
“Within 24 hours, the Trump administration has articulated a broad-based pivot away from Europe, both with respect to NATO and with respect to trade,” said Barbara Matthews, a senior fellow with the Atlantic Council. “The economic impact in Europe may be considerable.”
To make matters worse, Mr. Trump has thrown in an explosive grievance: the value-added tax, a system used by more than 140 countries to raise revenue through levies on domestic and imported goods. Economists said his complaint could be used as a lever to push possible tariffs on U.S. imports even higher.
That would potentially increase the prices for Americans on some of the European imports they love, from Porsche sports cars and Novo Nordisk’s diabetes and weight loss drugs to Gucci leather handbags and IKEA furniture.
But the European Union stands to lose more from the fight, which could cut economic growth by as much as 1 percent in the coming years as trade with the United States slows and investment in Europe abates, according to economists at Morningstar DBRS, the financial services company. “The shock would be concentrated in 2025 and 2026, and the impact could be larger on countries with large manufacturing sectors with more direct and indirect exposure to U.S.-E.U. trade,” they wrote in a research note.
Higher tariffs will also complicate matters for the European Central Bank, which has been steadily cutting interest rates since last summer in an attempt to bolster the region’s faltering economy. Christine Lagarde, the president of the central bank, warned last month that Mr. Trump’s planned tariffs “will have a global negative impact.”
The tariff threat is forcing European governments into a corner as they grapple with growing debts and widening deficits that require them to raise more revenue to jump-start their economies.
The European Commission, the bloc’s executive branch, called the proposals from Washington “a step in the wrong direction,” and vowed that it would take action.
“The E.U. will react firmly and immediately against unjustified barriers to free and fair trade, including when tariffs are used to challenge legal and nondiscriminatory policies,” it said in a statement on Friday.
Mr. Trump has taken particular aim at Germany, Europe’s largest economy and the one on the shakiest ground. It generates nearly a quarter of the European Union’s gross domestic product, and its trade surplus with the United States expanded to a record $72 billion in 2024.
But Germany is stuck in stagnation after two years of economic decline. The government in Berlin last month cut its growth forecast for 2025 to 0.3 percent, down from 1.1 percent, and economists say that tariffs could further weaken its fragile economy.
Italy is particularly exposed to the U.S. market, according to Confindustria, the country’s biggest business association. After the European Union, the United States is Italy’s biggest export destination, and a 10 percent increase in tariffs on Italian products would cost the country 4 billion to 7 billion euros, according to Prometeia, an Italian consulting firm.
France is also facing a growth slowdown as it seeks to rein in one of the highest debts and deficits in Europe. The government recently passed a belt-tightening budget. But executives in industries critical to the French economy, including automobiles, pharmaceuticals and wine and spirits, are worried that Mr. Trump’s tariffs could cut demand in one of their biggest export markets.
European industry is already reeling from high energy costs and sluggish demand from consumers who are still feeling the sting of inflation, which peaked in 2022 at 10 percent, but has since dropped to 2.4 percent. Additional U.S. tariffs would “contribute to a prolonged industrial downturn for Europe,” said Bert Colijn, chief eurozone economist at ING Bank.
Those risks increase if Mr. Trump insists that Europe’s value-added tax is similar to a tariff, an argument he is using to further elevate the overall level of tariffs on U.S. imports.
On average, European countries charge a 22 percent value-added tax on all goods, compared with an average U.S. sales tax of 7 percent, said Holger Schmieding, chief economist at Berenberg Bank. “It is possible the U.S. wants to justify a 15 percent tariff, the difference between the two, on E.U. goods on this basis,” he said. But he added that doing so would be “more destructive.”
At risk are Europe’s automakers like Audi and Porsche, which export billions of dollars’ worth of cars to the United States, as well as pharmaceutical companies like Novo Nordisk, which make the popular weight loss drugs Ozempic and Wegovy.
Higher import duties would also hurt European luxury goods companies, said Luca Solca, chief luxury goods analyst at the research firm Bernstein. They could use other strategies to offset part of any higher tariffs, he said, but “the higher the rise in import duties, the bigger the problem.”
E.U. governments could lower their own import tariffs to try to appease the United States, though they are unlikely to gut the value-added tax, which generates nearly a fifth of total tax revenue.
But such complexities do not seem to factor into Mr. Trump’s arguments for eye-for-an-eye tariffs. He instead will focus on specific industries that show what he calls the “unfair” nature of trade, analysts said.
The German auto industry, in particular, appears to bother Mr. Trump, who for years has claimed that BMW, Mercedes-Benz and Volkswagen put “millions of cars” on U.S. streets. But in 2023, those three German carmakers produced 900,000 vehicles in the United States, creating 48,000 jobs.
Hildegard Müller, president of the German Association of the Automotive Industry, pointed out that although Mr. Trump has criticized Europe’s 10 percent duty on passenger car imports — compared with 2.5 percent in the United States — America charges a far higher 25 percent import duty on pickup trucks, the best-selling vehicle in the United States.
She urged the European Union to negotiate an agreement. “The E.U. must present a united and strong front — and make it clear time and again that escalation will only produce losers,” she said.
The magnitude and complexity of the Trump administration’s tariff proposal means that countries and companies will scramble to find a solution. With his response to Canada and Mexico, Mr. Trump, showed that he is often willing to cut a deal, said Stephen Olson, a visiting senior fellow at the ISEAS–Yusof Ishak Institute in Singapore.
“As with all things Trump, this policy could shift in a heartbeat,” Mr. Olson said. “Fast and furious negotiations will undoubtedly take place between now and the implementation date.”
Eshe Nelson contributed reporting in London, Emma Bubola in Rome and Jeanna Smialek in Washington.
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