European Union diplomats are scrambling to dissuade Washington from moving ahead with the tariffs, even as they sketch out unprecedented retaliatory measures should the duties be imposed. European leaders are also debating their own “trade bazooka” response, underscoring how quickly the dispute could escalate into a full-blown transatlantic trade war.
At the same time, international institutions are warning that trade tensions are once again among the main threats to global growth. The IMF has highlighted tariff conflicts as a key reason it now expects global growth to slow to about 3.1% in 2026. It has also cautioned that trade frictions and a reversal of the artificial-intelligence-driven market boom are central downside risks.
For the US economy, the immediate channel of impact would be higher import costs on European goods and potential counter-tariffs on American exports. Key sectors such as autos, aerospace, industrial machinery and pharmaceuticals could face margin pressure and market-share losses if the European Union targets iconic US brands in response.
Even if underlying demand softens, higher goods prices and renewed supply chain uncertainty could keep headline inflation stickier than policymakers anticipate, limiting the Fed’s scope for cuts and keeping real borrowing costs elevated for households and firms.
Episodes of tariff anxiety have tended to produce a familiar pattern: equity volatility, sector rotations away from trade‑sensitive exporters, a bid for Treasuries and safe‑haven assets, and oscillations in the dollar. If the standoff intensifies into a prolonged dispute, asset allocators may need to revisit assumptions on correlation, hedging and country risk.