A looming trade clash between the U.S. and European Union could deal a staggering economic blow to the bloc—potentially costing up to $1.25 trillion by 2028—if former President Donald Trump moves ahead with proposed tariffs, according to a new study by Germany’s Economic Institute (IW).
Earlier this month, Trump’s team unveiled sweeping plans for a 20% tariff on all EU goods and an even steeper 25% duty on car imports, arguing that the bloc’s trade surplus with the U.S. is unacceptable. Brussels quickly prepared retaliatory tariffs of its own, but Trump hit pause, granting a 90-day window for negotiations. Still, if talks fall apart and the tariffs kick in, the EU could face cumulative losses ranging from €780 billion to €1.1 trillion, the IW warned.
Germany, the EU’s economic powerhouse, could take the hardest hit. Already grappling with stagnation, Berlin might see its GDP shrink by up to 1.6% annually under a full-blown tariff war—translating to an eye-watering €180 billion in lost economic output by 2028. The automotive and pharmaceutical sectors, heavily reliant on exports to the U.S., would be among the most affected.
The study also highlights just how deep the transatlantic trade ties run. In 2024 alone, trade between Germany and the U.S. totaled €253 billion, making America Berlin’s largest trading partner. But that relationship is now under strain.
Adding to the tension, European Commission President Ursula von der Leyen floated a “zero-for-zero” deal—scrapping industrial tariffs on both sides. Trump, however, dismissed the proposal as inadequate. He demanded the EU commit to purchasing $350 billion worth of American energy to earn any tariff relief, doubling down on his criticism that Europe has treated the U.S. unfairly for too long.
Despite ongoing talks between U.S. and EU officials this week, little progress has been made. With the tariff pause ticking down, uncertainty looms large, chilling global investment plans and rattling economic forecasts on both sides of the Atlantic.
