Customs conflict looms: Merz is counting on a trade deal with the USA by July!

Customs conflict looms: Merz is counting on a trade deal with the USA by July!

Uncertainty about future trade relations between the EU and the US continues to hang over the European economy like a sword of Damocles. Chancellor Friedrich Merz recently expressed his hopes for a trade deal with the United States by July 9th. These comments follow constructive discussions that took place at the G7 summit in Canada. Particular emphasis was placed on the automotive industry as a key area that is of utmost importance for Germany, according to NP Coburg.

Merz explained that the negotiations, which are being conducted by the EU on behalf of all member states, are unlikely to cover all areas. In view of the severe import tariffs of 25 percent introduced by Trump, the pressure to reach an agreement is great. The European Union has made it clear that if negotiations fail, it will respond to these tariffs with appropriate measures, including possible counter-tariffs. The current trade relationship between the EU and the USA amounts to an impressive 1.5 trillion euros per year.

Consequences of a tariff war

Concerns about a possible customs conflict are not unfounded. A study by the Family Business Foundation shows that the introduction of 25 percent additional tariffs on all goods imported from the EU would have devastating effects. German exports to the USA could therefore collapse by almost 43 percent, and Germany's gross domestic product (GDP) could fall by 0.2 percent. Sectors such as the pharmaceutical industry as well as the automotive and mechanical engineering industries would be particularly affected, which could record declines of 8.7 percent, 4.1 percent and 3.8 percent, according to Tagesschau.

But it's not just direct exporters who are affected; Companies that supply raw materials or services are also feeling the effects of a possible trade war. A detailed analysis shows that the indirect impacts on supply chains and production networks could be significant. Almost 98 percent of the 237 EU regions would suffer income losses, while some smaller regions could potentially benefit from these conflicts, particularly in the financial and logistics sectors.

Harm reduction strategies

To counteract the potential losses, the EU could seek to reduce its dependence on the US by expanding its trade relations with other free trade partners, such as Canada and Mexico. Strategies to diversify and improve regulatory cooperation could enable long-term GDP gains and help mitigate the risks of a tariff conflict, explains another analysis by DIW [DIW].

The coming weeks will be crucial to see whether a trade deal actually materializes or whether the trade conflict escalates further. The political rhetoric has intensified, with voices from the SPD calling for a quick solution, while the Bundesbank wants more international cooperation. It is clear to everyone involved: a quick conclusion to the negotiations is necessary in order not to further endanger the economic foundations of the EU.