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>>EU‑US Trade Conflict: Renewed Tariff Concerns After Diplomatic Setback – Danske Bank Analysis

EU‑US Trade Conflict: Renewed Tariff Concerns After Diplomatic Setback – Danske Bank Analysis

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about 5 hours ago

Trigger and Context

The European Commission announced retaliatory tariffs on U.S. clean‑technology imports, prompting the United States to target European automotive and agricultural exports. This escalation followed the collapse of the Transatlantic Trade and Technology Council talks, ending the 2023 Brussels Agreement. Analysts note a parallel with the 2018‑2020 EU‑U.S. trade dispute, which cut bilateral trade flows by about 12% and disrupted $120 billion annually.

Economic Impact

Reciprocal tariffs create a double‑taxation effect that raises consumer prices and dampens business investment, shrinking GDP by roughly 0.8‑1.2% for every 10% tariff increase. Key sectors—European autos (25% on $45 bn), semiconductor supply chains, agriculture, and renewable‑energy cooperation—face immediate pressure. Markets reacted sharply, with the Euro Stoxx 50 down 3.2% and the S&P 500 falling 2.7%, while the euro‑dollar pair saw its biggest single‑day swing since 2023.

Bank Projections

Danske Bank’s multi‑factor model outlines three scenarios for 2025‑26: de‑escalation (-0.3% EU GDP, -0.4% U.S. GDP, -2.1% global trade), status‑quo (‑0.9% EU, ‑1.1% U.S., ‑4.7% trade) and escalation (tariffs >20%, ‑1.8% EU, ‑2.2% U.S., ‑8.3% trade). The analysis highlights a non‑linear damage curve, with impacts accelerating sharply beyond a 15% average tariff level. Small‑ and medium‑sized enterprises are especially vulnerable to cost spikes and supply‑chain disruptions.

Geopolitical Outlook

Both blocs are diversifying trade links— the EU with Mercosur and Southeast Asia, the U.S. with the Indo‑Pacific Economic Framework—yet full agreements typically require 3‑5 years. In the interim, uncertainty is projected to curb cross‑border corporate investment by 15‑20%. Experts suggest sector‑specific deals or bilateral working groups could ease tensions, but domestic political pressures in Europe and the United States limit negotiation flexibility.