‘Liberation Day’ impacts to prolong the EU industrial recession

The Trump administration’s imposition of a blanket 20% tariff on EU imports, in addition to the wide-ranging tariff increases imposed elsewhere, is set to weigh on European manufacturing and prolong the industrial recession.

Across EU industry, the tariff impacts are likely to be highly asymmetric. Sectors with the highest export reliance on the US include high-tech goods, machinery, and transport equipment, including cars. We expect these sectors to experience a demand-driven decline in output as tariff increases lead to price rises.

Weaker output in these sectors will reverberate through integrated EU supply chains by weakening demand for input supplying sectors. Our modelling suggests basic metals and rubber and plastics are vulnerable through this channel.

A weaker US and global economy will amplify the negative impacts on EU industry by further weakening demand for EU exports.