A US-EU trade deal seems probable following the US-Japan agreement, pressuring the EU. Talks suggest a potential 15% tariff on EU exports to the US. Without a deal, the US could impose a 30% tariff. The EU has refrained from direct retaliation, but tariffs could harm EU economies, especially Germany and Italy.

Scope Ratings estimates a 15% US tariff could decrease euro area growth by 16pps. Germany and Ireland are most vulnerable, facing a 0.4pps output loss, while Spain and France are also affected. Trade tensions led to a reduction in euro area growth forecasts, despite expected improvements due to fiscal stimulus and defense spending.

If the US imposes 30% tariffs on the EU, along with countermeasures, the impact on EU growth would be more severe. A hypothetical scenario suggests a 0.6pps output loss for the euro area and 0.5pps for the EU economy by 2028. Negotiations are crucial to avoid this trade outcome for Europe.

The US market is crucial for EU exporters, highlighting the importance of trade cooperation. An agreement is likely, potentially with US tariffs above 10%. Any deal might involve caveats and carve-outs, acting as a starting point for further negotiations. The EU has options for retaliation, but a gradual approach is expected.

Read more at Yahoo Finance: EU’s Sluggish Economy Faces Moderate Growth Slowdown from US Trade Tensions