Economy faces toughest challenge since World War II due to Trump's imposed tariffs.
The United States' imposition of new tariffs on August 7 has sparked a wave of protectionism, deglobalization, and the redefinition of new strategies. This move, in particular, has significant implications for Spain and the European Union (EU).
The tariffs on EU and South Korea products will increase by 15%, in India it will be 25%, South Africa 30%, and Canada 35%. These increased tariffs could lead to output losses, particularly in major economies like Germany, Italy, France, and Spain. According to recent reports, Spain may see a moderate medium-term output reduction of about 0.3 percentage points due to the tariffs.
Germany, the EU's largest economy, could experience a 0.4% GDP decline once the tariffs' effects fully materialize past 2025, while France faces an estimated 0.25% GDP impact. These tariffs cause uncertainty that could depress investments and cost jobs across all EU member states, even those with limited direct US export exposure such as Spain and France, due to global economic weakness and trade uncertainty.
The long-term effects of these tariffs also include increased inflationary pressures and a weakened euro valuation. The EU faces higher tariffs on its goods—averaging around 15%, up from about 1.2%—leading to these outcomes.
Politically, internal disagreements within the EU about the trade deal’s perceived unbalance could undermine its implementation, further weakening the euro and EU growth prospects. Additionally, the US benefits from improved access to European markets (notably reduced EU tariffs on US cars) and large purchases of US energy and military equipment, which strengthen the US dollar and indirectly pressure the euro downward.
The risk of a global recession linked to US trade policy has increased. This environment of trade tensions reduces global and EU market stability, influencing prolonged economic and currency challenges for the EU and its members, including Spain.
In a less globalized world, the variety and combination of investment opportunities will be different from what has prevailed so far. The economic scenario is transforming rapidly, with many analysts predicting a more fragmented world.
The tariff policy and doubts about the US's fiscal consolidation plan could provoke inflationary pressures that will generate an increase in the budget deficit to 9% of GDP by 2035, according to Singular Bank. This trend, especially in the US, and a greater risk of a slowdown in growth are driving up the yields of developed market sovereign bonds.
The US and China are expected to be the most affected by the change in the trade paradigm. In a less globalized world, the bond markets are experiencing a global transformation due to Germany's fiscal expansion and trade policy.
This year has tested the benefits of active management, with a market that has internalized the ups and downs of trade policy. If President Trump does not change his trade policy, tariffs on EU, South Korea, India, South Africa, and Canada products will remain significantly high.
In summary, the US trade war exerts a dampening effect on the EU economy and Spain through tariffs, market uncertainty, lost investments, and currency pressure, creating adverse long-term outcomes for growth and economic stability in the region. The economic scenario is transforming rapidly, with many analysts predicting a more fragmented world.
- The increased tariffs on various countries' products, including Spain, could lead to moderately reduced output in Spain's medium-term, as reported by recent analyses.
- Uncertainty caused by these tariffs may decrease investments and job losses across EU member states, even those with minimal direct US export exposure like Spain.
- A more fragmented world economy resulting from the tariff policies and political trade tensions, as predicted by many analysts, can alter the variety and combination of investment opportunities available, especially in situations like the current one facing Spain.
