The recent announcement by US President Donald Trump to impose a 25% tariff on all European products has raised concerns worldwide, particularly in the countries of the EU that rely most on exports. This move signals a further escalation in transatlantic trade tensions and could have significant effects not only on European and US economies but also on third parties such as China and the Gulf Arab states.

Imposing a 25% tariff on every or most European product exported to the US would substantially raise costs for American consumers, while at the same time undermining the competitiveness of EU goods. As the additional costs are often passed on to the final consumer, European companies risk seeing a decline in US sales, which could ultimately affect employment and corporate finances in Europe. European goods would become more expensive on US store shelves, prompting consumers to seek domestic or alternative imports from third countries. The EU currently exports about €503 billion worth of goods annually to the United States. Assuming an elasticity of demand of -1, a 25% drop in exported volume could exceed €100–120 billion. Key industries such as automotive, chemicals, and agri-food could feel the brunt of these tariffs.

It is worth noting, however, that the tariff policies adopted by the US government may not be applied uniformly across all products but could instead be sector-specific. While this targeted approach would likely reduce the overall impact of tariffs compared to a blanket 25% rate on every European good, it could also increase uncertainty about which products or industries might be affected next. Such unpredictability has the potential to hinder investment decisions and weigh on transatlantic trade, as businesses may delay or alter their strategies in response to a shifting and less transparent trade environment.

To protect its interests, the EU might introduce countermeasures on US products, as seen in previous trade disputes:

• Retaliatory Tariffs on American goods (e.g., agricultural products, motorcycles, alcoholic beverages, industrial components), potentially impacting about €347 billion of US exports to the EU.
• Legal and diplomatic actions such as filing complaints at the World Trade Organization (WTO) or activating dispute resolution mechanisms provided by existing trade agreements.
• Reorganization of supply chains by searching for production alternatives outside the United States and promoting investments in strategic sectors to reduce dependency on US imports.
• Tariffs of this magnitude could generate a shock to global supply chains, with companies forced to revise logistics and find new suppliers or production sites. The most exposed sectors include:
  Automotive: Major European carmakers (BMW, Volkswagen, Mercedes) and their suppliers.
• Paper and pulp industry: Already engaged in intense global competition, these companies would see higher export costs to the US.
• Agri-food: Higher tariffs on cheeses, wines, and other European specialties would reduce their competitiveness in a high-value market like the United States.
• Pharmaceuticals: Europe’s strong research and manufacturing networks for medicines could be disrupted by additional trade barriers, raising costs and complicating cross-border supply chains.
• Industrial machinery: Renowned European producers of specialized equipment could face diminished competitiveness in the US market, potentially affecting a wide range of American industries reliant on these imports.

Over the long run, both the EU and the US risk losing efficiency due to trade fragmentation, potentially negatively impacting the GDP of both blocs.

Beyond the direct effects on transatlantic trade, a commercial standoff between the United States and Europe could produce notable consequences for China and Gulf Arab countries, shaping their growth prospects and economic stability.

China is also facing higher US tariffs, which adds another layer of complexity to the global trade environment. While China might see short-term benefits from trade diversion, it also confronts the challenge of aggressive US protectionism. In this scenario, the EU and China may find common ground to reduce existing frictions in EU–China trade and encourage bilateral exchanges. Specifically:

• Increased exports via trade diversion: If the United States reduces imports from the EU, it may rely more on Chinese goods—especially in electronics, industrial components, and consumer products. Similarly, the EU might turn to Chinese suppliers as an alternative to American goods that become more expensive due to retaliatory EU tariffs.
• Potential strategic cooperation with the EU: Given Washington’s protectionist stance, Beijing and Brussels may opt to address long-standing trade issues to foster mutual benefits. This could include China agreeing to phase out practices the EU views as “dumping,” in exchange for lower EU tariffs on certain Chinese goods. Such an arrangement would aim to mitigate the adverse effects of US policies on both China and the EU while strengthening Sino-European trade ties.
• Geopolitical and regulatory hurdles: Despite possible short-term gains, China still faces uncertainties as the US and EU look to reduce over-reliance on Chinese supply chains, particularly for critical or strategic goods. Any deeper cooperation between Beijing and Brussels would require substantial negotiations, given European concerns about technology transfers, intellectual property rights, and state subsidies.
  Gulf Arab economies depend heavily on oil and gas exports. Their chief concern in a deepening trade war is the effect on global energy prices and demand:
• Risk of lower oil prices: A prolonged trade war could slow global economic growth, reducing energy demand and pushing oil prices downward. Even a 10–20% drop in oil prices could significantly impact public finances and derail diversification efforts in Gulf economies.
• Partial compensation from the EU market: If EU tariffs on American oil make US crude less competitive in Europe, Gulf states could see a rise in demand from European buyers. However, this benefit may not fully offset the broader global slowdown and weaker energy consumption.

Overall, while China might capitalize on transatlantic tensions by boosting its exports or forging a new alignment with the EU, Gulf economies risk being hit by lower oil prices and a deceleration in global growth, with negative repercussions for state revenues.

*****

The US decision to impose a 25% tariff on all European products represents a major challenge for both sides of the Atlantic. Europe, disadvantaged by these tariffs, is likely to respond with countermeasures, producing ripple effects for businesses and consumers alike in both regions.

China, also facing increased tariffs from the US, may benefit from trade diversion and might seize the opportunity to strengthen economic ties with the EU by addressing practices deemed unfair in Europe. Gulf Arab states, meanwhile, could see a drop in oil revenues if global demand slows, partially offset by increased sales to the EU if American oil becomes more expensive.

A protracted trade war would be costly for the entire global system, undermining diplomatic relations, slowing trade flows, and heightening market uncertainty. Ideally, the parties involved will seek compromises to avoid further escalation, protecting their strategic and economic interests while maintaining a stable international trading environment.