The German Economic Institute (IW) has argued that if former US President Donald Trump takes office again and increases import tariffs as much as he proposes, the German economy will contract by at least 1.2 percent by 2028.
The IW, which is funded by leading German business associations and has weight among policymakers in Berlin, published the article the day before “Super Tuesday”, the day when the most states vote in the US presidential primary cycle. Trump, the presumptive Republican nominee, has proposed imposing a 10 percent tariff on all imports and raising tariffs on Chinese imports by 40 percentage points to 60 percent if he defeats President Joe Biden in the US election on November 5.
According to the IW study, this tariff shock will lead to a temporary 1-1.4 percent decline in US economic output in the first years. This is mainly due to the pressure on consumption from high consumer prices and unemployment, and a confidence shock that will affect investment in the short term… But improvements in trade and fiscal balance will allow US gross domestic product to recover, only slightly negative, by 2028.
“The EU must be prepared”
According to the IW study, the impact on Europe, and especially on export-oriented countries like Germany, will be much more severe, even as they are already struggling with high energy prices and a shortage of skilled labor. According to the study, Germany’s GDP will fall by 1.2 percent by 2028 due to a drop in exports and a reduction in private investment. If China retaliates with a 40 percentage point increase in import tariffs, it could fall by as much as 1.4 percent.
“The EU should prepare for such a scenario now. The EU should use President Biden’s remaining term to put its trade relations with the US on a firmer footing,” IW warned. “Second, if Trump is elected and threatens to impose new trade barriers against the EU, the EU should be able to respond. To counter such a threat, the EU must also make a credible threat of retaliation.”
Nearly 6 times more delegates than its rival
Donald Trump continues to score victories in the Republican Party primaries. After winning primaries in Missouri, Idaho and Michigan over the weekend, Trump now has 244 of the 1,215 delegates needed to become the presidential nominee. His only rival, Nikki Haley, won the primary in the capital, Washington D.C., marking her first primary victory. Haley thus reached 43 delegates.
