Trade conflict strategies for Europe

Europe is facing a challenging economic landscape, with trade tensions between major global powers intensifying. The most likely scenario, according to experts, is regional fragmentation and selective retaliation, which carries a likelihood of 50 percent.

The liberal trading order, a cornerstone of global economic stability, is under strain due to rising protectionism and economic coercion. This shift is particularly concerning for Europe, deeply integrated into the global economy, making it particularly vulnerable to these changes.

In the most likely scenario, growth slows amid heightened uncertainty. Sectors reliant on exports, as well as those dependent on imported inputs, are expected to suffer. For instance, the European Commission has downgraded its 2025 GDP growth forecast to 0.9 percent, citing U.S. tariffs as a significant factor.

The EU faces U.S. tariffs, with proposed tariffs on imports from the bloc reaching as high as 50 percent. Retaliatory tariffs, industrial subsidies, and investment restrictions increase across the board in this scenario.

The EU Commission's 2025 GDP growth forecast for Europe is expected to be updated or adjusted around key economic meetings such as the ECB sessions. The next major meeting is on October 30, 2025. If trade conflicts between the USA and Europe escalate further, it could negatively impact GDP growth projections, which are currently estimated at around 1.2% for 2025 by both the ECB and Raiffeisen Research.

Protectionist dynamics intensify, and the EU reinforces its defensive trade posture in the most likely scenario. U.S.-European trade declines significantly under these conditions.

While the most likely scenario involves selective retaliation, there is also a 20 percent likelihood of a full-scale trade war involving the EU. Such a conflict would result in tariffs, sanctions, and regulatory restrictions proliferating. This would have a profound impact on the global economy, with the potential to fracture it into competing blocs in the future.

Strategic autonomy projects expand while multilateral cooperation remains stalled in this scenario. The EU, in an effort to mitigate the impacts of these trade tensions, may focus on bolstering its internal economic resilience and reducing its reliance on external markets.

In conclusion, Europe is navigating a complex and uncertain economic landscape. The escalating trade tensions pose a significant threat to the continent's economic growth, and the situation remains fluid. As key economic meetings approach, the outlook for Europe's economy will become clearer.