Stock markets have been rocked by volatility and uncertainty is mounting for companies entangled in global supply chains following a major tariff announcement from the US government.

The European Union will now face a 20% tariff rate on its exports to the United States. Higher tariff rates will apply to China (34%), Japan (24%), India (26%), along with other nations.

The United Kingdom, Brazil, Australia and Turkey will face the lowest tariff rate of 10%, while Canada and Mexico have been excluded for goods compliant with the USMCA treaty. 

But while exporters brace for a hit, the shock move from Washington might not spell economic hardship for consumers.  

In fact, it could lead to cheaper goods at home, at least in the short term. 

At the heart of the matter lies Europe’s long-standing trade surplus with the United States.  

According to the European Commission, the European Union exported €503.8 billion in goods to the United States in 2023 and imported €347.2bn — yielding a trade surplus of €156.6bn. 

The picture shifts when it comes to services, with Europe importing €427.3bn and exporting €318.7bn. A large share of services imports are tied to US tech giants.  

Even so, the EU still maintains a positive overall trade surplus with the US. 

This backdrop matters. If the US levies a 20% blanket tariff on EU goods, the brunt of the impact falls disproportionately on European exporters.  

Everything else being equal, European products just became 20% more expensive in one of their most important markets—risking a significant loss of competitiveness. 

A wheel of Parmigiano Reggiano from Italy, or a bottle of French wine, for example, will suddenly carry a 20% premium for American consumers.  

European cars, in particular, could be hit hard. With tariffs on autos already at 25%, the additional 20% could render them uncompetitive, potentially sidelining them from US showrooms altogether. 

From export squeeze to domestic surplus

The US accounts for roughly 12% of total EU exports, meaning that replacing that demand overnight is nearly impossible. 

As US demand wanes, inventories could pile up in Europe and elsewhere. That means more goods available for the domestic market—which, in turn, could lead to discounts and lower prices for European consumers. 

In the short term, this could prompt firms to offload excess stock in domestic markets, fuelling price competition and potential discounts.  

At the same time, the European market risks being flooded by goods redirected from other major exporting nations—such as China, Japan, and India—that are also facing steep trade barriers in the US. This added wave of global supply could further amplify availability and intensify downward pressure on prices across the continent. 

In other words, a trade shock that weakens external demand might—ironically—translate into modest disinflationary pressure within Europe, at least temporarily. 

Which products could see lower prices

Europe’s trade surplus with the United States is heavily concentrated in a handful of key sectors. Pharmaceuticals lead the way, accounting for a €57bn surplus, followed closely by vehicles at €44bn, based on International Trade Centre data. 

The beverage industry contributes another €8bn, while ships and boats add €5.4bn. Luxury goods—including leather products, apparel, and footwear—deliver a combined surplus of €9bn. If demand from the US market weakens, these sectors risk accumulating unsold inventory. 

In the short term, European consumers may benefit from cheaper prices in pharmaceuticals, vehicles, clothing, and even food and beverages.  

Real inflationary risks remain subdued for now

One of the main inflationary triggers for Europe in recent years has been energy costs, as the bloc remains heavily reliant on energy imports.

In 2024, Europe imported €700bn in energy products—including crude oil, natural gas and refined fuels—resulting in a trade deficit of €346bn in the sector. 

Yet, early market reactions to Trump’s tariffs suggest that inflationary fears tied to energy are easing, not accelerating.

Crude oil prices dropped more than 3% on Thursday, and European natural gas benchmark Dutch TTF slid 2%, amid expectations of slowing global demand due to reduced trade activity. 

Meanwhile, concerns that a sharp depreciation of the euro could fuel import-driven inflation have not materialised. Instead, the euro has strengthened, rising over 1.5% to 1.10 against the dollar, marking a six-month high.

In summary, US products constitute a smaller portion of European consumer baskets compared to the reverse. European consumers could surprisingly find themselves on the winning side of an otherwise bitter global trade war.