Trump's tariffs – who really loses out?

Trump threatens historically high tariffs

Donald Trump has threatened to increase US import tariffs on Chinese imports to 60% and to raise tariffs on imports from all other countries to 10%. This would be yet another significant tightening of his trade policy compared to his first term in office. Back then, the average US tariff had risen from below 2% to around 3%. Now, it would multiply to around 15%, reaching levels of the 1930s (title chart). The higher US tariffs would obviously make it more difficult for European firms to export goods to the US, a trade volume that represents 2.9% of the EU's gross domestic product.

In the short term, the tariffs will weigh on the European economy

Political discussions tend to focus on two effects that would weigh on the European economy. For example, foreign goods on the US market will become more expensive, causing US consumers to shift their demand from imported goods to domestically produced US goods. European exports to the US would therefore fall. In addition, competition would intensify in other markets: Chinese companies, in particular, would be looking for other markets for the products they can no longer sell in the US. They would increasingly – and at discounted prices – push into other markets, thereby intensifying competition for German products outside the US market. Both effects together would initially slow down the economy in Europe.

In the medium term, however, other effects will balance this out

There are some effects that are being ignored in the discussion about the impending US tariffs and which, in themselves, have a positive impact on the EU economy:

China will be harder hit than the EU. Since the tariffs on Chinese imports will probably be higher than those on European imports, European products will become more competitive in the American market compared to Chinese products. This competition has become more important in recent years as China has caught up technologically and is increasingly exporting technologically advanced machinery and electronics.
The US dollar is appreciating. Due to the tariffs, the US is demanding fewer goods on the world market. Consequently, American importers exchange fewer US dollars for foreign currencies, which reduces the supply of US dollars and causes the US dollar to appreciate against foreign currencies. The stronger dollar makes EU imports more affordable for Americans, thus partially offsetting the negative effect of tariffs
US products are losing competitiveness. Since US companies have to pay tariffs on imported intermediate products, their final products become more expensive. In particular, on markets outside the US, this makes goods ‘made in the USA’ more expensive in relation to European ones. This would create a (relative) advantage for European products over American products in all markets worldwide. This effect would be further reinforced by the fact that the greater domestic demand for US products would also increase the demand for labour and thus likely cause wage costs to rise more sharply.

For full text see attached PDF-Version.