Donald Trump’s proposed 25% tariffs on EU imports could lead to “economic turmoil,” significantly reduce growth, and cause inflation to increase, according to a report by the Kiel Institute. The research organization stated that the US president’s announcement to place levies “very soon” marks a significant moment in the economic relationship post-WWII between Washington and Brussels, which could result in an economic shock for both parties.

The Kiel Institute projected that EU exports to the US would decline by 15-17%, resulting in “a significant” 0.4% contraction of the EU economy, while the US GDP would decrease by 0.17%. This scenario would be aggravated by retaliatory tariffs from the EU, doubling the economic impact and raising inflation by 1.5%. German manufacturing exports to the US would be particularly hard hit, with nearly 20% of these exports expected to decrease.

Julian Hinz, the head of trade policy at Kiel, noted that while the overall impact on the EU might seem minor, it would hit at a bad time since European economies are not performing well currently. The potential damage to manufacturing, especially the German car industry, which is already under stress, would be more severe.

The economic repercussions on the EU could be mitigated by higher import fees from competing markets. President Trump has announced tariffs on 25% goods from Mexico and Canada and an increase to 20% on Chinese products, starting from March 4th. Canada and Mexico had assumed that earlier commitments to secure their borders meant that they would be exempt from Trump’s threats of tariffs.

Hinz is revising the study to include these new developments but has already determined that US consumers would be among the most significant losers. Tariffs on goods from more countries would increase costs in the US. The increased impact on imports from Canada, Mexico, and China compared to previous assumptions would create a more even playing field with the EU.

EU officials have hinted at responding to any tariffs on goods exports to the US with protectionist measures of their own. Hinz indicated that even if the tariffs were canceled, the uncertainty about their implementation would hamper businesses’ ability to plan, potentially slowing investment, disrupting supply chains, and reducing economic growth on both sides of the Atlantic.

Source: https://www.theguardian.com/business/2025/feb/27/donald-trump-tariffs-on-eu-imports-could-trigger-economic-turmoil