According to the latest studio of the IW, the German Economic Institute, the basic duty of 15 percent will lead to costs of 16 billion euros to the German economy, or 0.4 percent of GDP in the period 2025-2028. But be careful, these are at least acceptable figures if the alternatives are considered: if the average tariff rate should rise to 35 percent, as recently threatened, a cost of over 40 billion euros is expected. And again, with the related retaliation – in a nutshell, the commercial war – even of over 50 billion euros per year.
However, the agreement is not definitive, as has shown the discussion of these days. Much remains uncertain and the risk of a new escalation is far from averted. The details are not clear and remains particularly uncertain as EU commitments will be implemented on energy imports and investments in the United States. Even EU’s commitment to invest 600 billion dollars in the USA represents an important question mark, above all because on both the banks of the Atlantic there are different opinions on how to interpret this commitment.
Therefore, the uncertainty regarding further developments in the tariff conflict remains high and the costs are difficult to estimate in a reliable way. The simulations based on the global economic model of Oxford Economics can however provide some indications on the matter. The costs calculated for the German economy are presented, assuming the implementation of the scenarios presented starting from the third quarter of 2025, compared to the situation prior to the current change of US commercial policy, when, according to the WHC data, the weighted tariff rate for the commercial exchanges of the United States was 2.2 percent and that of the EU of 2.8 percent. Exceptions, such as the 50 percent duty on steel and aluminum and the trade free of duties in individual sectors, are not taken into consideration.
The results of the simulations show that the German economy will still support costs in the order of tens of billions per year. Even if the agreement was implemented and the basic duty remained to 15 percent, the costs would amount to 0.4 percent of the GDP, or 16 billion euros on average for the period 2025-2028. If the controversy on the duties further worsen, the costs could rise to 1.1 percent of the GDP, or over 40 billion euros. With the relative retaliation measures by the EU, the costs could even exceed 50 billion euros per year, which would involve a reduction in GDP of over 1 percent between 2025 and 2028.
For the EU as a whole, the costs, measured as a percentage of GDP, are of similar entities. In absolute terms, the costs would amount to around 67 billion euros per year if the agreed tariff rate of 15 percent and the United States was applied to the EU duties to the EU market. If the commercial conflict should further aggravate itself and the US duties were increased to 35 percent, costs could occur equal to 175 billion euros per year, measured as a deviation of EU GDP compared to the hypothetical basic scenario, in which the tariff level would remain at the level of early 2025. With the relative retaliation measures by the EU, the costs for the European economy could even reach 210 billion euro.
In short, the Macron/Schlein line would have cost billions of euros. A little too much to satisfy the manias of protagonism of those who want to assert themselves as a leader …
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