Trump’s Proposed Tariffs on 8 European Nations: A Comprehensive Assessment by Goldman Sachs

Over the weekend, former U.S. President Donald Trump announced plans to impose a 10% tariff on all goods imported into the U.S. from Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland, effective February 1st.

The tariff rate is slated to increase to 25% starting June 1st, and will remain in place "until a deal is reached for the complete, total purchase of Greenland."

While significant uncertainty remains regarding whether these tariff threats will materialize, Goldman Sachs has conducted a thorough analysis of the potential implications in their latest research note.

Goldman Sachs estimates that a 10% tariff would reduce the real Gross Domestic Product (GDP) of the affected European countries by 0.1% to 0.2% through reduced exports. Concurrently, the impact on inflation is expected to be minimal.

Under the assumption of other factors remaining constant, the Taylor Rule would suggest a modest reduction in policy interest rates.

Regarding retaliation, Goldman Sachs economists believe the EU could take three levels of retaliatory action. The UK, however, faces a higher threshold for retaliation, consistent with its stance during last year's trade negotiations.

Below are the key takeaways from the Goldman Sachs report:

① The Announcement and Uncertainty

Trump has declared that the U.S. will impose a 10% tariff on imports from eight European countries (Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland) starting February 1st, with plans to raise it to 25% on June 1st until a deal to purchase Greenland is reached.

Goldman Sachs views the implementation of these tariffs as highly uncertain.

② Scale of Exposure

The announced tariffs would apply to annual exports to the U.S. worth approximately €270 billion from several EU member states—roughly half of total EU exports to the U.S.

If implemented as a universal tariff on all exports to the U.S., the affected exports would account for 3% to 3.5% of Germany's, the Netherlands', and Finland's GDP. If applied only to goods currently subject to U.S. reciprocal measures, the affected exports would represent 1.5% to 2% of these three countries' GDP.

In total, the affected exports account for 1% to 1.5% of Eurozone GDP and 1% to 2% of UK GDP.

③ GDP Impact

Goldman Sachs projects that if the U.S. imposes a 10% tariff, the resulting trade contraction would reduce the real GDP of the affected countries by 0.1 to 0.2 percentage points.

Germany would be the hardest hit: A 10% incremental reciprocal tariff (the most likely scenario) would reduce GDP by about 0.2 percentage points; a full tariff would lead to a 0.3 percentage point decline.

The overall drag on Eurozone GDP is estimated at around 0.1 percentage points, similar to the impact on the UK.

The impact could be amplified if there are negative effects on confidence or financial markets. Conversely, the drag could be mitigated if countries reroute trade through EU nations not subject to the tariffs.

If tariffs rise to 25%, the GDP impact on each country would expand to 0.25 to 0.5 percentage points. All these GDP losses would be additive to the 0.4 percentage point drag on real GDP caused by tariff increases last year.

④ Inflation and Monetary Policy

The inflationary impact is likely to be negligible (assuming no retaliation), as the decline in demand would dampen inflation.

Under a simple Taylor Rule framework where central banks respond to GDP and inflation, policy rates would likely see a modest downward adjustment.

⑤ Potential EU Retaliation

Goldman Sachs identifies three potential tiers of EU retaliation against further U.S. tariffs:

Delaying the implementation of the U.S.-EU Trade Agreement: Ratification of the agreed tariff reductions on U.S. goods requires approval from the European Parliament. Goldman Sachs sees a low threshold for the EU to take this action.

Imposing retaliatory tariffs based on last year's approved lists: This includes a €25 billion list (matching the scale of U.S. steel and aluminum tariffs, covering soybeans, copper, iron, motorcycles, orange juice, etc.) or a previously drafted €93 billion list of U.S. imports (with broader tariff coverage, including aircraft, automobiles, agricultural products, etc.). Retaliatory tariffs would exert a moderate mechanical upward pressure on European inflation.

Activating the "Anti-Coercion Instrument" (ACI): This tool was specifically designed for such scenarios. Initiating the procedure does not mean immediate implementation (it requires multiple steps), but it signals the EU's potential readiness to act and buys time for negotiations. The anti-coercion mechanism could involve a broader range of policy tools than tariffs, such as investment restrictions or taxes on U.S. assets and services (e.g., digital services).

⑥ UK Stance

The UK faces a higher threshold for retaliation, consistent with its position during last year's trade negotiations.

Goldman Sachs expects the UK to focus on diplomatic engagement with the Trump administration, as hinted by UK Culture, Media, and Sport Secretary Lisa Nandy in a recent interview.