What will be the impact of a US-EU trade war on the life of EU citizens? 

The spectre of a transatlantic trade war looms again over the US and the EU. On 12 March, the US applied a 25% tariff on imports of steel and aluminum, and the EU responded with countermeasures.

In her statement, Commission President Ursula von der Leyen stressed that tariffs "are bad for business and worse for consumers."

Euronews tried to find out why.

Based in Brussels, economist Vassilios Psarras, an expert at DeHavilland Europe, argued that based on economic orthodoxy that tariffs will never be profitable.

"Any tariff policy that will affect the means of production. So, when it comes to the reserves, natural reserves like steel and aluminum will ultimately have an impact on the production machine at the European Union level," he told Euronews.

"However, we cannot be certain if these tariffs, especially, are accompanied by additional policies from the EU institutions this response of 26 billions in tariffs from the EU will create, ultimately, an inflationary impact for EU citizens."

Research indicates that tariffs will hit the US first

The most recent research from the German think tank Kiel Institute shows that tariffs raised by the US on the European Union will, first and foremost, hurt the US when it comes to inflation, employment levels and growth level.

But what about European citizens?

"The impact on European citizens is something that I cannot predict at the present moment because there are different channels on how tariffs could ultimately affect the citizens," said Psarras, adding that citizens may switch their consumption to domestic goods when they see imported ones going up in price.

"However, we also have two very severe problems to think about, which is going to be the monetary reaction and the financial market reactions.” 

Do Europeans have enough alternatives?

But will EU citizens be able to find alternatives if some products become too expensive?

Psarras thinks that the EU can replace, if not all, then most of the American products, such as electric vehicles.

"We saw that with Tesla sales plummeting, but also one of the most fierce full AI tools that has been used, ChatGPT could actually be replaced by the French alternative Mistral AI. I think that even if we consider some of the most widely used products, maybe with the exception of Google, I presume as a search engine, the vast majority could actually be replaced," Psarras argued.

"What we cannot replace is the dominance of the US over the financial system, and especially on the capital markets.”

A US recession with global effects is now a possible scenario

According to the analyst, the EU remains dependent on the US financial system. A possible recession in the US could influence the European economy because the EU will not be immune to the consequences.

Psarras does not exclude the scenario of a US recession with worldwide effects.

"We are still uncertain on what is going to happen to US and consequently to international growth. Because now more and more analysts are discussing the prospects of a US recession. Even Donald Trump, during his State of the Union speech recently, mentioned that things could get worse before they get better. And if we keep that in mind, that can translate into a recession have an impact worldwide,” he said.

Psarras explained that although the EU has reacted to global crises more effectively in the past, it is still quite unprepared to deal with an extensive global recession and that this needs to change.