Germany and Ireland stand out as the two most threatened economies in the EU from higher US tariffs, reports Euronews.

When US President Donald Trump imposed new 25 percent tariffs on car and auto parts imports in April, Germany was identified as the EU country with the most to lose. The Brussels-based think-tank Bruegel estimated then that the tariffs could cost the country 0.4% of GDP in the long run.

In anticipation of the new EU-US trade agreement, other details are emerging that could put Ireland, Denmark and Belgium, as well as other countries, in the crosshairs if Washington targets the pharmaceutical sector.

The overall impact on the European economy will depend on the actual size of the tariffs that the US will set and on the EU's response, but the blow will not be spread evenly.

According to Bruegel, the bloc's economy faces significant but manageable macroeconomic consequences.

In a report in April, they estimated that, in terms of possible scenarios, the damage could be approximately 0.3% of EU GDP, depending on the outcome of the negotiations. By comparison, according to the European Commission's (EC) spring forecast, the bloc's real GDP growth in 2025 is expected to reach 1.1%.

Trade with the US is significant. In 2024, the United States is the largest export partner for EU goods, accounting for 20.6% of all EU goods exports.

Pharmaceuticals account for 15% of the bloc's exports to the US. They are followed by the automotive sector.

While there is no more clarity on potential U.S. duties on pharmaceuticals products, "the automotive sector seems to be the most vulnerable to U.S. duties as there don't seem to be any major exceptions planned," said Matthieu Savary, chief strategist at BCA Research... In April, a 25% duty was imposed on the automotive industry.

"Tariffs alone could reduce the EU's total trade volume by around 8% over the next five years," said Rory Fennessy, senior economist at Oxford Economics, in a recent report.

Among the countries with the largest value of goods exports to the US that face the greatest threat to their economies are Germany, Ireland, Italy, France and the Netherlands.

Germany's economy relies heavily on exports boosted by the country's motor vehicle sector. Nearly a quarter (22.7%) of total German exports are directed to the US.

"Germany stands out as the large European economy likely to be hardest hit by U.S. tariffs, and we expect GDP growth to contract in the second and third quarters," said Andrew Hunter, associate director and senior economist at Moody's Ratings.

Hunter also added that smaller economies, including Austria and other Central and Eastern European countries, "which are highly integrated into Germany's industrial supply chains, will also be hit hard".

According to Bruegel, after 2025 the long-term negative impact of tariffs could be around 0.4% of Germany's GDP, once "the effect has fully built up and the initial short-term effects dissipate," said Niklas Frederic Poitier, a research fellow at Bruegel. "For France, the average effect will be around 0.25% of GDP."

The uncertainty could lead to a loss of investment and jobs across the 27-member bloc. Hunter said that "even for countries where direct exposure to US exports is relatively limited, such as France or Spain, growth is still likely to be burdened by global weakness and uncertainty.

In terms of longer-term impacts, Ireland stands out as one of the most affected countries as more than half of its merchandise exports (53.7%) are directed to the US market.

Much depends on whether the pharmaceutical sector will be affected by the tariffs. If so, "Ireland will be the EU economy most threatened by these duties," Savary said.

The research-based pharmaceutical industry is a key asset of the European economy. It is one of the best performing high-tech sectors in Europe.

According to a recent PWC study, it contributed €311 billion in gross value added (GVA) and 2.3 million jobs directly and indirectly to the European Union economy in 2022.

And the US market is crucial for the European pharmaceutical sector. According to the European Federation of Pharmaceutical Industries and Associations in 2021. North America will account for 49.1% of global pharmaceutical sales compared to 23.4% for Europe.

And more than a third of EU pharmaceutical exports go to the US.

If the pharmaceutical sector is hit by a 25% duty, as Moody's expects in the coming months, "the most at risk will be a number of smaller European economies such as Denmark, Belgium, Slovenia and Ireland, which are generally the places where we think the risks of recession in Europe are highest," Hunter said.

BCA Research's chief strategist added that in this case, "Ireland is particularly exposed to this risk", pointing out that exports to the US account for 18% of Ireland's GDP and pharmaceutical exports account for nearly 55% of Irish exports. According to the BCA, the impact "could lead to a 4 to 5% reduction in growth over time".

Bruegel estimates that the cumulative loss in Ireland's real GDP could reach 3% by 2028.

The think tank also identified the country as the most vulnerable to the employment impact of the US tariffs.

In terms of how vulnerable a country is to job losses in light of the US tariffs, Bruegel said Italy is the second most at-risk country, with a high exposure in the transport equipment sector. There is also a high level of risk in Italian fashion and car manufacturing. Italy is also highly exposed in the field of pharmaceuticals.

On 8 July, Trump said that pharmaceuticals imported into the US were threatened with a 200% duty, without revealing further details.

According to BCA's Savary, this is unlikely because "it would massively increase healthcare costs for American consumers, which is already a major issue for voters."

The expert sees this as "a strong message to foreign pharmaceutical companies to adjust their prices downward and invest in the production of their drugs in the US." Savary expects that "foreign direct investment in the US and announcements of drug price cuts will be the end result of these talks and threats."

"The pressure is now on pharmaceutical companies to expand their U.S. manufacturing capacity so that they are on the doorstep of U.S. customers," says Dan Coatsworth, investment analyst at AJ Bell. | BGNES