Economist Ulrike Malmendier, a member of the German Council of Economic Experts, anticipates potential price decreases across Europe as a result of threatened tariffs of 30 percent or higher proposed by US President Donald Trump.
Malmendier, in an interview with “Der Spiegel” stated that tariffs of this magnitude would primarily disadvantage the United States, leading to wealth losses, dampened growth and increased inflation. While European growth, particularly in Germany, would also be negatively impacted, she doesn’t foresee rising prices.
Instead, she suggests that the tariffs could trigger a shift in trade patterns. Goods that would typically be exported to the US would need to find alternative markets, potentially within the European market. This increased supply could then lead to lower prices. This effect would persist even if European companies reduce production in the long term.
The redirection of trade would also affect other exporting nations. China would need to find alternative sales outlets for its goods, while South America would need new buyers for commodities like soybeans and beef if the US market disappears. Malmendier believes Germany could potentially benefit from this realignment.
Therefore, Malmendier urges the European Union not to succumb to what she describes as pressure from Trump, but to engage in robust negotiations. She points to China as a potential model for effective bargaining. The EU’s objective, she asserts, should be to reinstate largely tariff-free exports to the US. Even the current 10 percent tariffs, she notes, are already making the export of key goods, including some German automobiles, economically unviable. Established tariffs, she warns, can outlive the era of the leader who implemented them, persisting for years, making them exceptionally difficult to eliminate.
Malmendier suggests that Trump holds a belief that the US is being unfairly taken advantage of by Europe due to a significant trade deficit. She advocates for the EU to emphasize that this deficit doesn’t fully account for the inclusion of services in the export-import balance. As a countermeasure, she proposes that if Trump remains unconvinced, the EU could consider imposing tariffs on services provided by major US software companies and investment banks.