Filenews 19 January 2026 - by Eleftheria Kourtali
The impact on GDP is expected to be small for the eight countries that Trump is targeting with new tariffs – if of course they can finally be implemented – with the largest being accepted by Germany and the United Kingdom. In any case, the negative effect will be less if countries redirect trade through EU countries. The political consequences will however be much greater than the economic ones. We should prepare for more noise, international agencies warn.
Trump announced that the US will impose a 10% tariff on imports from eight European countries (Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands and Finland) from February 1. It plans to increase this tariff to 25% on June 1 and maintain the tariff until the U.S. reaches an agreement on the Greenland market.
Goldman Sachs emphasizes that it is extremely uncertain whether these tariffs will be implemented.
The announced tariffs will apply to EU member states that account for about 270 billion euros of annual exports to the US, or about half of EU exports to the US, as it notes. The affected exports would be worth 3 to 3.5% of GDP to Germany, the Netherlands and Finland if applied as a general duty to all exports of goods to the US and 1.5 to 2% of GDP if applied only to goods currently subject to the US reciprocal tariff. Overall, the affected exports will be worth 1-1.5% of GDP for the eurozone and 1-2% of GDP for the UK.
Goldman estimates that a 10% tariff from the US — if implemented — would reduce real GDP by 0.1 to 0.2% in affected countries through reduced trade. Germany will take the biggest hit, around 0.2%, if it is applied as a gradual reciprocal tariff of 10% (which seems more likely) and 0.3% if applied as a general tariff.
For the eurozone as a whole, the implied negative impact on GDP is around 0.1%, similar to the UK. The blow could be greater in the event of adverse effects on confidence or financial markets. But the negative effect would be less if countries redirected trade through EU countries that are not subject to the additional tariff. The blow to GDP between countries would increase to a hit of 0.25 – 0.5% for a 25% tariff. All these blows to GDP will add to the negative 0.4% effect on real GDP estimated by the US bank from last year's tariff increases.
The impact on inflation would likely be very small due to lower demand, Goldman emphasizes, assuming there will be no retaliation. A simple Taylor rule — in which central banks react to GDP and inflation — would indicate moderately lower policy rates.
Finally, Goldman sees three potential levels of EU retaliation against further U.S. tariffs:
– Delay in the implementation of the EU-US trade agreement, as the agreed reduction of US tariffs requires ratification in the European Parliament. G.S believes that the EU will not face any obstacles to do so.
– Imposing retaliatory measures on American products using last year's approved lists. These include a €25 billion list corresponding to the value of US tariffs on steel and aluminium (including soybeans, copper, iron, motorcycles, orange juice) or previous plans to target up to €93 billion in imports from the US (with tariffs covering a much wider range of goods, including aircraft, agricultural products, etc.). Retaliation would entail moderate upward pressure on European inflation.
– Activation of the Anti-Coercion Instrument (ACI), which is designed for cases like this. Activation does not mean implementation (which requires several steps), but it signals possible EU action and gives time for negotiations. The ACI could include a range of policy tools broader than tariffs, such as investment restrictions, taxation of US assets and services, such as digital services, etc.
Goldman believes it is more difficult to retaliate from the U.K., in line with the country's approach during trade negotiations last year. He thus expects to focus on diplomatic cooperation with Trump.
For its part, Bank of America points out that the eight countries targeted by Trump account for about 11% of US imports. However, it is unclear how the tariffs will be implemented, as all but Norway and the United Kingdom (2% of imports) are in the EU. Therefore, either the tariffs would have to be applied across the EU (more than 15% of imports), or the goods from the other six countries could simply be shipped to the US via countries such as Spain and Italy, which are not subject to the latest measures. Unless the tariffs apply across the EU (Trump has not stated so far), the economic impact on the US will be minimal.
In BofA's view, the latter duties will be imposed under the IEEPA. If this is correct, it raises the stakes for the Supreme Court's decision on the IEEPA. A negative decision would now have geopolitical consequences. One way to circumvent this would be for the Court to differentiate between the reciprocal tariffs of 2 April and other measures (e.g. fentanyl, Greenland).
The costs of the new set of tariffs are also likely to be small for the EU countries involved, unless the tariffs apply throughout the EU. More importantly, the new tariff announcement shows that the US-EU deal signed last year, as BofA has pointed out, was never going to eliminate uncertainty. The uncertainty has returned, and this comes at a cost if the shock is persistent. Last year's "agreement" provided a "framework" for future agreements, as it showed that when the EU is in a difficult position, it lacks the flexibility and strength to negotiate strategically. This has always been an open invitation to squeeze the area again, the US bank emphasizes.
This time, however, Europe may have no choice but to react, given that territorial integrity is at stake. For now, it seems that the European Parliament will freeze the implementation of last year's agreement. There is an extraordinary Council meeting, possibly in the latter part of the week, which could lead to further action. This could include activating the EU's anti-coercion tool, which would potentially extend retaliation beyond goods.
Deutsche Bank sees that there is now a possibility that the EU will use the US assets it owns as a weapon. European countries hold $8 trillion in U.S. bonds and stocks, almost twice as much as the rest of the world combined. In an environment where the geo-economic stability of the Western alliance is existentially disturbed, it is not clear why Europeans would be so willing to play this role. Denmark's pension funds were among the first to repatriate money and reduce their dollar exposure last year at this time. With exposure to US dollars remaining very high across Europe, developments in recent days have the potential to further encourage a rebalancing of the dollar.
And Capital Economics estimates that if the Trump tariffs are implemented, the economic impact will be modest: at face value, the tariffs will reduce GDP in the affected economies by a few tenths of a percentage point, while adding a similar amount to US inflation. The political and geopolitical consequences will be much greater, however.
The legal basis for the tariffs is unclear, the agency emphasizes. Any attempt to rely on emergency powers – such as those provided for in the International Economic Emergency Powers Act, IEEPA – may be limited by the Supreme Court. It's also worth noting that Trump hasn't always implemented similar threats, including a proposed 10% tariff on Canada. Imposing tariffs on some EU countries – but not on the EU as a whole – will likely lead to an extensive rerouting of trade within the bloc in order to avoid tariffs.
If the past year has shown anything, it is that the macroeconomic effects of tariffs are uncertain and non-linear. Even so, the countries most exposed are those with the largest shares of exports to the US – mainly the UK and Germany. A 10% tariff could reduce GDP in these economies by about 0.1%, while a 25% tariff could reduce output by 0.2-0.3%. The impact on other countries would probably be smaller. With all other parameters constant, such tariffs could add about 0.1-0.2% to US inflation, although, as recent experience has shown, these effects can be easily offset by other factors.
The political implications would be much greater than the economic ones, Capital Economics emphasizes. Any U.S. attempt to seize Greenland by force or force Denmark to cede the territory would cause a rupture in transatlantic relations and potentially cause irreparable damage to NATO. While European governments have shown a willingness to compromise with the US on issues such as trade, defense spending and Ukraine, sovereignty over Greenland is unlikely to be negotiable. The Danish government has no authority to transfer the territory without the consent of the Greenlandic population. However, in addition to a transfer of sovereignty, Europe would likely be open to broad concessions – making it possible to imagine a "deal" that Trump could present as a victory.
Trump wants to force Denmark and its European backers to sell Greenland to the U.S. by imposing tariffs. For Europe, this is a serious geopolitical headache and a moderate economic problem, Berenberg said. But it could also backfire on Trump, who faces resistance from senior Republicans in the US. In any case, we must prepare for more noise, the agency points out.
Europe needs Trump to defend Ukraine. A harsh and very strong response to Trump would therefore be dangerous. In an extreme case, a U.S. invasion of Greenland could tear apart the NATO alliance. The fact that Trump has threatened to impose further tariffs on U.S. allies for geostrategic rather than economic reasons is something new, however.
Last year, the global economy coped with Trump's tariffs better than many feared, Berenberg notes. Trump's new threat reduces hopes that he will cause less tariff chaos this year than in 2025. What is at stake? In 2024, the US imported about $350 billion worth of goods from the eight countries that Trump is now threatening with new tariffs. An additional 10% tariff on goods from these countries could eventually raise U.S. consumer prices by up to 0.15%. However, Trump's threat jeopardizes the entire US-EU tariff deal. In the unlikely event that the deal is not implemented, the damage to American consumers could be nearly three times greater in the end.
Additional tariffs and persistent uncertainty could worsen the business climate in the EU and reduce growth by 0.1-0.2 percentage points. However, the legal basis for the new tariffs is weak. It is unclear whether Trump can even implement them, Berenberg said. The Supreme Court could soon put an end to this with its "Liberation Day" tariff ruling. Trump's new tariff threat underscores the risks to growth, a little more for Europe than for the US. For now, it seems more likely that the tariffs will not be applied, or at least not for long.
