New York, NY, May 24, 2025 – Goldman Sachs analysts have outlined a cautious outlook for U.S.-EU trade talks, anticipating heightened tensions driven by President Donald Trump’s proposed tariffs and a shifting global trade landscape. With Trump’s re-election and his administration’s aggressive trade stance, including threats of 25% tariffs on EU imports like cars and smartphones, the analysts predict a challenging negotiation environment that could dampen European economic growth while having a relatively modest impact on the U.S. economy. Their insights, detailed in reports and cited by Investing.com and Goldman Sachs Research, highlight the interplay of tariffs, economic policy, and geopolitical uncertainty shaping the talks.
Key Projections for U.S.-EU Trade Talks
Goldman Sachs expects U.S.-EU trade talks to face significant hurdles due to Trump’s tariff threats, which include a potential 10% across-the-board tariff on all U.S. imports and higher levies targeting specific EU sectors. The analysts forecast that a rise in trade policy uncertainty to levels seen during the 2018-2019 U.S.-China trade conflict could subtract 0.3% from U.S. GDP but a more substantial 0.9% from the euro area’s GDP in 2025. This disparity reflects Europe’s greater exposure to trade disruptions, given its export-driven economy, particularly in Germany, where automotive and manufacturing sectors are vulnerable.
In their “Macro Outlook 2025: Tailwinds (Probably) Trump Tariffs” report, Goldman Sachs Research, led by Chief Economist Jan Hatzius, notes that the economic headwind from U.S. trade policy will likely be more pronounced outside the U.S. The euro area’s growth forecast for 2025 has been downgraded by 0.5 percentage points to 0.8% (compared to a consensus of 1.2%), partly due to anticipated U.S. tariffs. An across-the-board 10% tariff could further depress this figure, potentially pushing the European Central Bank (ECB) to adjust monetary policy, though recent German spending plans may reduce pressure for deeper rate cuts.
Tariff Impacts and European Vulnerabilities
The analysts highlight that EU exports, particularly German cars, face significant risks from Trump’s proposed 25% tariffs on imported vehicles. This threat, coupled with broader trade uncertainty, could disrupt supply chains and reduce business investment in Europe. Goldman Sachs points out that a falling euro, already weakened relative to the dollar due to Europe’s sluggish growth, may offer some relief by making European exports more competitive. However, this benefit is limited, as higher U.S. tariffs could offset cost advantages, per Goldman Sachs Research.
The report also underscores Europe’s sensitivity to global trade dynamics. While U.S. tariffs on China (potentially reaching 60% on certain goods) are expected to hit China’s growth harder, subtracting 0.7% from its 2025 GDP, the ripple effects could further strain EU markets reliant on Chinese demand. Goldman Sachs analysts assume Chinese stimulus and renminbi depreciation may mitigate some impacts, but escalating trade wars could prompt larger downgrades to global forecasts.
U.S. Economic Resilience and Policy Offsets
For the U.S., Goldman Sachs projects GDP growth of 2.5% in 2025, outpacing the consensus of 1.9% and other developed markets for the third consecutive year. The analysts argue that the impact of new trade policies, including tariffs, will be “small and largely offset” by domestic factors like tax cuts, regulatory easing, and improved business confidence. Higher consumer prices from tariffs may reduce real disposable income modestly, but Hatzius expects positive impulses from these policies to dominate by 2026, assuming trade tensions do not escalate further.
U.S. core PCE inflation is forecasted to slow to 2.4% by late 2025, though a 10% universal tariff could push it to 3%. The Federal Reserve is expected to cut rates to 3.25-3.5% by Q1 2026, supporting growth amid tariff-induced pressures. This resilience contrasts with Europe’s challenges, where labor productivity growth lags (0.2% annualized since 2019 vs. 1.7% in the U.S.), exacerbating the region’s vulnerability to trade disruptions.
Strategic Considerations and ECB Response
Goldman Sachs analysts anticipate the ECB will lower its policy rate to 2% by June 2025, revised up from an earlier 1.75% projection, partly due to Germany’s planned defense and infrastructure spending, which could spill over to neighbors like France and Italy. This spending, estimated to boost German growth by 0.2% in 2025, may reduce the need for aggressive ECB rate cuts, as noted by Sven Jari Stehn’s team. Lower rates are expected to benefit indebted sectors like telecoms and real estate, while a weaker euro could enhance the competitiveness of European firms, though not enough to fully counter tariff impacts.
The analysts also suggest that European stocks, tracked by the STOXX 600, may see a 9% total return in 2025 despite trade headwinds, driven by cooling inflation and potential ECB stimulus. Senior strategist Sharon Bell emphasized that consumer-facing sectors like retail and travel, less exposed to tariffs, could perform robustly, per Goldman Sachs Research.
Broader Context and Risks
The outlook is clouded by Trump’s broader trade agenda, including threats to upend longstanding U.S.-EU trade partnerships. His administration’s focus on reducing the U.S. trade deficit and protecting domestic industries has raised fears of a broader trade war, with X posts like @OilandEnergy noting the “chilling effect” on global markets. Goldman Sachs warns that an escalation beyond current assumptions—such as retaliatory EU tariffs of 50% or higher—could amplify economic damage, particularly for Europe.
Public and investor sentiment reflects unease, with @Investingcom citing Goldman’s analysis as a “sobering” take on EU prospects. The analysts’ cautious optimism for the U.S. hinges on policy offsets, but they acknowledge risks if trade talks deteriorate. For the EU, the combination of political uncertainty, slow growth, and tariff threats creates a precarious negotiating position, potentially forcing concessions to avoid deeper economic fallout.
Conclusion
Goldman Sachs analysts foresee U.S.-EU trade talks navigating a fraught landscape, with Trump’s tariffs posing a greater threat to Europe’s export-driven economy than to the U.S. While domestic policies may cushion the U.S., Europe faces a tougher road, with limited growth and heightened trade sensitivity. The ECB’s monetary easing and regional spending offer some relief, but the outcome of the talks will hinge on whether both sides can avoid a full-scale trade war. As negotiations unfold, Goldman Sachs’ projections underscore a delicate balance between economic resilience and the risks of escalating protectionism.
