Trump’s tariffs spark economic shifts, raise concerns for US, global economy

US President Donald Trump’s decision to impose sweeping “reciprocal tariffs” on European Union (EU) goods, including a blanket 20 per cent tariff on EU imports and a minimum 10 per cent levy on all other goods, has sparked significant concern among analysts.

While these tariffs are expected to hurt the EU economy, the United States stands to suffer even more, according to several studies, Caliber.Az reports citing foreign media.

The tariffs are anticipated to reduce EU GDP by only 0.2 percentage points this year, a relatively minor impact compared to the expected 1.2 per cent decrease in US output. The Conference Board, a US-based think tank, projected that the new tariffs would cut US growth by more than five times the impact on the EU. As a result, analysts caution that these protectionist policies could cause significant economic disruption, not just for the EU, but globally.

Sony Kapoor, professor of geoeconomics at the European University Institute, characterized the tariff move as a “massive regime shift” that could signal “the end of the American century.” He added, “Any sensible, half-prudent company, person, country, or bloc should be thinking of hedging their bets and diversifying their ties across economic, financial, and security dimensions” away from the United States.

European Commission President Ursula von der Leyen echoed similar sentiments, emphasizing the EU's intent to “build bridges” with nations that value fair trade. Deutsche Bank revised its growth forecast for the eurozone downward from 0.8 per cent to just 0.25-0.50 per cent due to these developments, while also slashing its US growth forecast from 2.2 per cent to 1 per cent.

The tariffs are expected to further strain the eurozone economy, which is already grappling with high energy prices, weak demand, and fierce competition from Chinese exporters. Kapoor noted that while the tariffs may push the eurozone closer to a recession, it would not trigger a global depression. “Does it risk pushing the world into the next Great Depression? Almost certainly not,” he said.

The tariffs also have broader implications for the EU-US relationship. Mujtaba Rahman, managing director for Europe at the Eurasia Group, stated, “We are moving to a world where the transatlantic alliance in the future will not be the same as the alliance that came before the Trump administration.” He argued that Trump’s actions have already caused significant damage to EU-US relations, including in trade, security, and political spheres.

Analysts also worry that Trump’s policies could have a disruptive impact on the global economy, particularly in relation to China. Sander Tordoir, chief economist at the Centre for European Reform, expressed concerns that China might “dump” billions of euros’ worth of goods into the EU market as a result of the US tariffs. This could exacerbate Europe’s already growing trade deficit with China.

The impact of these policies also raises questions about the long-term dominance of the US dollar. Rahman warned that Trump’s unpredictability and protectionist stance could erode the dollar’s status as the global reserve currency. The dollar has already fallen 5.93 per cent against a basket of other currencies since the start of the year.

Despite these concerns, analysts, including Tordoir, cautioned that the US is unlikely to lose its “exorbitant privilege” of controlling the global financial system anytime soon, though the risks to the dollar’s dominance are real.

By Vafa Guliyeva