Tariffs risk disrupting this intricate investment relationship. For instance, European companies might struggle to send parts to their US factories, while US firms could face retaliatory barriers when exporting final products back to Europe.
The escalating trade war between the US and Europe poses a significant threat to a commercial relationship worth an estimated $9.5 trillion in two-way trade and investment, according to American businesses impacted by the conflict, as reported by the Wall Street Journal.
Risks beyond tariffs on goods
The American Chamber of Commerce to the European Union (AmCham EU) highlighted that the consequences of tariffs could extend far beyond taxed goods, risking substantial harm to trans-Atlantic investments. Such investments are valued at over three times the worth of goods trade alone.
In a report published Monday, AmCham EU stated that two-way trade in goods, including with the UK, reached a record of about $1.3 trillion last year. Trade in services between the two economies was estimated at over $750 billion. However, investments surpassed these figures, with European affiliate sales in the US estimated at over $3.5 trillion, and US affiliate sales in Europe likely exceeding $4 trillion.
“The damage to the trade flows in goods is bad enough,” said AmCham EU Chief Executive Malte Lohan. “The real risk is that it starts contaminating some of the other links.”
Trump’s tariff strategy raises tensions
US President Donald Trump has primarily targeted goods in his trade discussions with Europe, focusing on the US goods trade deficit with the EU, which was $235.6 billion last year, according to the Commerce Department. Recently, Trump imposed 25% tariffs on global steel and aluminium imports and has threatened additional tariffs of 25% on European cars and other products, including pharmaceuticals.
In retaliation to EU plans for tariffs of up to 50% on US products, including whiskey, Trump countered with threats of 200% tariffs on French Champagne and other EU alcoholic beverages. European wine producers have warned that such tariffs could effectively close the US market to their products.
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Potential broader impacts on investment and services
According to Dan Hamilton, a fellow at Johns Hopkins University and co-author of the AmCham EU report, the consequences of tariff conflicts could be broader. The EU may retaliate by targeting services, an area where the US currently maintains a trade surplus. The complexities of cross-border production and investment could be significantly affected.
Hamilton explained that tariffs could disrupt supply chains, making it harder for European companies to send parts to US affiliates and complicating US exports of final products. Moreover, policy uncertainty could deter companies from making future trans-Atlantic investments.
“The ripple effects of conflict in the trade space will not be confined to trade,” Hamilton said.
Concerns over foreign direct investment
The AmCham EU report noted that Europe remains the largest destination for American foreign direct investment (FDI), receiving more than the rest of the world combined. Similarly, European firms account for almost two-thirds of global FDI to the US.
Tariffs risk disrupting this intricate investment relationship. For instance, European companies might struggle to send parts to their US factories, while US firms could face retaliatory barriers when exporting final products back to Europe.
Such policy-induced uncertainty could lead to a freeze in trans-Atlantic investments, exacerbating the economic strain caused by the ongoing trade conflict.
While the full impact remains uncertain, the escalating tariff threats underline the potential for long-term harm to the deeply interconnected US-EU economic relationship.