Europe and Trump’s Unequal Train on the Economic Rails
Trump from Europe’s Perspective: An Overview in Five Key Data Points
Tariffs, energy, transportation costs, and exchange rates: Trump’s decisions have placed Europe’s economy in a state of tension, caught between tariff threats and new market uncertainties.
Tariffs: Current Status
In April, Trump’s storm descended upon the world, and now its first effects are visible. The average tariffs imposed by the United States on other countries have increased dramatically everywhere—from 23 to 71. Although the worst consequences have been felt by Beijing, where the average tariff jumped from 11 to 39, European allies have not been spared, with an increase from 13 to 39.
And what about Italy? It seems logical that the average tariff the U.S. imposes on Italian goods would be the same as for other European countries because we are in a customs union, and tariffs should be the same for everyone. However, U.S. tariffs are not applied uniformly across all sectors.
In fact, while Trump raised the minimum tariff on imports from the European Union to 20 in April and then reduced it to 10, initiating a truce period set to last until July 9, tariffs on some goods can be much higher. For instance, the import tariff on aluminum and steel has reached 50, and for cars up to 25, while some sectors like pharmaceuticals have been granted exemptions.
This means the actual tariff depends on the type of goods being exported to the U.S., and in this regard, Italy is slightly more affected. Even before Trump’s arrival, the average tariff on Italian goods was about 21, which in April neared 5 and is likely to increase again. In the same month, Germany’s situation was worse than Italy’s at 6, while France stopped at 31, and these differences have heightened tensions across the Atlantic.
European Union: Threat
On the other hand, negotiations between the European Union and the United States are not progressing quickly, a situation that has frustrated Trump and led him to threaten the reimposition of tariffs up to 50 on European goods, as he did one weekend in late May before retreating and emphasizing that the truce would continue at least until July 9. A scenario where tariffs reach 50 could be very dangerous for countries like Germany and Italy, where exports to the U.S. form a significant part of their economy.
Although initially, the European Union had adopted a strict approach in response to Trump’s unilateral decisions, agreeing to impose more tariffs on 21 billion dollars of American goods, these tariffs have not yet been implemented due to the truce period. The current strategy seems to be a wait-and-see approach as long as negotiations continue, although the European Commission has repeatedly reminded that it has multiple tools to respond to Trump’s threats, including heavier taxes on digital services.
However, the 90-day truce declared by Trump is nearing its end on July 9, while reaching an agreement still seems far off. Among European leaders, there is still no consensus. While a simple but quick agreement, as Merkel suggested, could satisfy many, Macron and others insist that showing too much flexibility towards Trump may not be the best approach.
Hormuz: Danger Averted
The May crisis between Israel and Iran seems to have ended. Trump called it the 12-day war, following a real truce imposed by the White House itself. But for two weeks, the world had been asking what would happen if Tehran decided to block the passage of commercial ships through the Strait of Hormuz.
The unanimous response was that this crisis would be much more severe than the current threat to the Red Sea, which has been threatened by Yemen’s Houthis, and for more than a year and a half, commercial traffic through the Bab-el-Mandeb Strait has decreased by 70. This crisis would be more serious for two reasons: first, because there is an alternative route via the Red Sea and then the Suez Canal, although costly, it exists—circumnavigating Africa.
Additionally, about 20 of the world’s total oil production and the same share of liquefied natural gas (LNG) pass through the Strait of Hormuz daily. To understand the vital importance of this strait, one only needs to look at the 1973 oil crisis when OPEC Arab countries reduced global supply by 5 to 6 percent, quadrupling prices. Although today the world is no longer the same as half a century ago, oil remains the largest energy source in the global basket, although its share has decreased from 42 to 27.
In this regard, Italy is in a relatively vulnerable position because our GDP is somewhat more dependent on oil imports than France and Germany. Interestingly, China’s economy is significantly more reliant on oil imports than ours, and India’s economy even more so than China’s. Since the United States is a net exporter of oil, it is relatively more protected from potential energy crises, although naturally, like all other countries, they will also be affected.
Transportation Costs: Decrease in Demand
Since mid-June, the price of transporting a standard container has decreased for the second consecutive week after more than a month of increase. This decrease coincided with the 12-day war between Israel and Iran, including Tehran’s threats to close the Strait of Hormuz. However, the geopolitical phenomenon that has had the most impact on maritime transport costs is something else: U.S. tariffs.
In fact, a detailed examination of the index shows that primarily transoceanic routes in the Pacific Ocean have influenced price trends. The costs of the Shanghai-New York and Shanghai-Los Angeles routes initially rose sharply and then began to decrease precisely when the costs of the Shanghai-Genoa and Shanghai-Rotterdam routes, which were more affected by developments in the Persian Gulf, increased significantly.
The trend in transportation prices on Pacific routes is likely influenced by the phenomenon of front-loading, where Chinese exporters use the truce period from mid-May to mid-August to send goods to the U.S. with an average tariff of about 40, instead of the tariff that, in the absence of an agreement between the two countries, could increase by at least threefold.
In fact, it does not seem that trade negotiations between the U.S. and China are progressing quickly. The difficult progress made in recent weeks is limited to issues related to China’s rare earth elements and American semiconductors, as well as some other products, and ignores the issue of tariff levels. The unpredictability, a trait that Trump is very proud of, is not very pleasant for the markets and certainly not acceptable for those who have to plan the movement of goods well in advance.
Dollar: New Tariff
Finally, there is news that is like a double blow for exporters to the U.S.: instead of the dollar strengthening against the euro as expected after Trump’s tariffs, the dollar’s value has significantly decreased.
In theory, the dollar should have strengthened for at least two reasons: one directly, because tariffs reduce import volumes, thereby decreasing the demand for foreign currency to purchase these goods and, conversely, reducing the supply of dollars in international markets.
And another indirectly, because in times of uncertainty, the dollar is usually recognized as a safe asset, and international investors rush to buy it.
Instead, since the American president took office on January 20, 2025, until June 30, the dollar has lost 13 of its value.
Observers attribute this decline to a significant drop in the currency’s credibility, caused by the uncertainty created by tariffs, which is a direct choice of American policies and not a global shock that would cause a flight to the dollar, and simultaneously due to the inability of the American political class to repair the federal budget—look, for example, at Trump’s grand and beautiful plan.
Whatever the reason for this dollar depreciation, for exporters sending goods to the U.S., it means an additional tariff almost to the same extent. For European exporters, the effect of the dollar’s depreciation has been only slightly mitigated because inflation rates in the U.S. have been slightly higher than in the Eurozone in the recent period, but only about 0.4 more, which is so small that the real effective exchange rate has not been significantly affected.
