Europe: How much damage could tariff hikes cause?

It looks increasingly likely that European companies will face rather sooner than later new tariffs when exporting to China or the US . As the EU is likely to hike tariffs for Chinese imports of electric vehicles , China in turn is likely to respond by lifting import tariffs for European exporters to China. Whether European exporters to the US will also face new tariffs will very much depend on the outcome of the election in November. A re-election of Trump would likely lead to new tariffs being slapped on European imports in the US. We try to quantify the growth effect of tariffs in this report with the help of two different empirical approaches. Our analysis shows that tariff hikes have clearly the potential to dent growth in the euro area significantly. A 10% tariff hike could reduce output in Germany by around 0.5%, 0.3% in France, 0.4% in Italy and 0.2% in Spain. Thus, d epending on the size of the hikes, the euro area could slide into recession in response to higher tariffs .