President Trump’s desire to annex Greenland and his decision to impose duties against a number of European countries have plunged the transatlantic alliance into the abyss of crisis. If a trade war breaks out, it will have a painful effect on the U.S. economy, from South Carolina to Silicon Valley, The Wall Street Journal reports.
The publication notes that European leaders are discussing EU retaliation, including imposing duties on more than $100 billion worth of U.S. goods and making it harder for U.S. multinationals to bid for European contracts. But such a path could lead Europe to disaster, says the WSJ.
At the same time, the EU’s retaliatory duties are unlikely to cause a recession in the US, the publication notes, citing economists’ opinions. But they may slow down the growth of the U.S. economy, hit the already weak manufacturing sector and push up prices for consumers and businesses at a time when the U.S. is unsuccessfully trying to bring inflation back to a comfortable level.
In the long term, the weakened ties could lead Europe to reduce its dependence on the U.S. and deepen trade ties with other countries, weakening relationships that have been a driver of prosperity on both sides of the Atlantic, according to the U.S. publication.
For the U.S., the end result could be that American companies will sell less to Europe, cutting into their profits and opening the door to competitors from countries such as China, Mary Lovely, a senior fellow at the Peterson Institute for the Global Economy think tank, told WSJ.
The publication notes that the European Union is the largest trading partner of the U.S., and Europe is America’s top source of foreign direct investment. As of 2024, its investment in the U.S. totaled $3.6 trillion. And it’s a two-way street: American companies make fortunes selling software, financial products and oil to Europe.
That said, a trade war is not the only economic risk, says the WSJ. Some analysts warn that Trump’s threats against Europe could also cause European investors to start reducing their investments in U.S. stocks and bonds. That would lead to a weaker dollar, falling U.S. stock prices and higher U.S. borrowing costs. Higher borrowing costs, in turn, tend to negatively affect business investment and household spending, leading to slower economic growth.
