US duties, why Italy and Germany would be the two most exposed EU countries

Are Italy and Germany the countries most at risk in Europe with Donald Trump's forthcoming use of tariffs? EU Economic Affairs Commissioner Paolo Gentiloni in presenting the new forecast on the European economy puts it in the bill: the spotlight is first of all on the possible protectionist turn in the US. The impact will not be immediate, its extent will need to be verified in the coming months, but for Gentiloni it is "clear" that new duties in the US could "have repercussions, especially in the countries that have the largest trade surpluses with the US, which are Germany and Italy".

The consequences in Europe would be severe considering that the trade relationship between the EU and the US is worth about EUR 1 trillion in goods and services per year. The trade balance with the US is in favour of the EU, with a surplus of EUR 156 billion in 2023, compared to a deficit in services of EUR 104 billion. A generalised 10% or 20% tariff would make it more expensive for US companies to import EU goods, putting up to a third of European exports across the Atlantic at risk in certain sectors, such as industrial machinery and chemicals (which make up 68% of exports to the US in 2023). The effects of a possible trade war with the US could cause recessionary effects in Europe. A 10% universal tariff could reduce eurozone GDP by between 1% and 1.6%.

At a standstill, the European Commission does not go beyond a GDP increase of 0.7 per cent this year. Last May the estimate was 0.9 per cent while the government forecasts 1 per cent. Italy's GDP should then grow by 1 per cent in 2025 (1.1 per cent was the previous estimate) and then rise by 1.2 per cent in 2026. Forecasts that obviously do not take into account the tariffs variable. Our exports would suffer. According to the most up-to-date annual data from Istat, in 2023 Italian exports to the US reached EUR 67.3 billion. Italy's imports from the US, on the other hand, reached 25.2 billion euro. So, overall, trade between the two countries is worth more than 92 billion euro, with a positive trade balance for Italy of 42 billion euro, with American exports to Italy mainly concentrated in the oil and gas, precious metals, machinery and pharmaceuticals sectors. The possible impact on GDP is closely linked to the countermoves that would be decided in Europe and by Germany, which represents Italy's main outlet market in Europe, and it is no coincidence that part of the drop in growth recorded this year is due precisely to the serious crisis in the former German locomotive. Exports are a fundamental variable of our GDP, if we consider that in 2023 Italian goods exports reached 626 billion euro, substantially stable compared to 2022. Therefore, a negative change in these export volumes due to duties would have an impact on GDP, although it is difficult to measure the impact at the moment.

At greatest risk should Trump follow the path of tariffs as he has promised would be Germany, Europe's largest economy but also the most dependent on exports in these areas. According to the latest EU Commission forecast, Germany will be in recession this year (-0.1%), before growing by 0.7% in 2025 and 1.3% in 2026. The Commission's autumn economic forecasts are based on data known as of 31 October. So even for Germany the protectionist consequences of Trump's re-election are not included in the estimates. However, the risk for Gentiloni is that there will be a upheaval in global trade, with heavy consequences for Germany. The import-export trade between Germany and the US totalled EUR 63.40 billion between January and March 2024. The US remains the number one trading partner for German exports. In 2022, Germany exported 156 billion in goods to the US, more than to any other country in the world. Now there is also the political unknown, with elections just around the corner.