Potential Trump presidency may pose key trade challenges to EU: Fitch

A potential increase in tariffs would initially have a modest negative impact on EU economies, but could further hinder already weak growth, as highlighted in Fitch’s latest economics dashboard.

Fitch analysed the trade exposure to potential US tariffs of the four largest EU economies—Germany, France, Italy and Spain.

Using the harmonised system (HS) code product groups, Fitch calculated specific product and country-level effective tariff rates.

Effective tariff rates on exports to the United States vary between 1-2.6 per cent, with Italy having the highest rate as its export basket contains products (like apparel and footwear) that are subject to higher individual tariff rates.

Overall, Fitch found that across the four countries, high tariffs are imposed only on discrete and small-value export components, while the product groups with the largest shares in the export basket face minimal or no tariffs.

The potential impact of increased tariffs was calculated at hypothetical rates of 10 per cent, 15 per cent and 20 per cent for all categories, assuming the entire tariff burden is passed onto European exporters.

The gross domestic product (GDP) effect would be most significant for Germany (0.3 percentage point [pp] at a 10-per cent tariff rate), followed by Italy (0.23 pp) and more moderate for France (0.17 pp) and Spain (0.11 pp), excluding spillover effects.

US tariffs would exacerbate existing growth challenges in Europe, particularly for Germany's export-oriented economy, which is already facing cyclical and structural shifts. This could affect eurozone growth and widen the economic performance gap with the United States.

The added growth risk could also strain public finances, making it difficult to meet deficit and debt targets, Fitch Ratings added.

Fibre2Fashion News Desk (DS)