Spain | Trade Effects of European Tariffs on US Goods

Summary

Amid rising global uncertainty, trade tensions with the United States are resurfacing. As background, in 2018 the EU responded to Trump's tariffs by imposing levies of 25% on more than 180 products. This had a lasting effect on the pattern of Spanish imports, although the overall economic impact remained limited.

Key points

• Key points:
• Although products affected by tariffs still accounted for about 3% of total Spanish imports, the share of purchases from the US fell to less than half by 2019.
• Between 2017 and 2019, Spanish imports of the taxed goods from the US fell by around 50%, while imports of the same goods from the rest of the world increased by approximately 11%.
• By 2024, that share had partially recovered. Among the US-produced goods that managed to regain much of their lost market share were those in the agri-food sector. However, the measures proved effective in reducing imports from the US of spirits (bourbon), industrial goods (iron and steel), and other products such as tobacco and substitutes, yachts, motorbikes, etc.
• The EU is currently negotiating tariff increases on more than 1,500 US goods. The aggregate impact is expected to be limited and will depend on several factors. For example, the ability to substitute the affected products. The previous episode showed that the EU was able to find alternative suppliers without sacrificing purchasing power, product availability, or economic growth.
• The ongoing appreciation of the euro against the dollar could also temporarily mitigate the negative impact. In addition, a shift in European fiscal policy—particularly increased defence spending and infrastructure investment in Germany—will help support growth in the region. Finally, the Spanish government's plan, which follows a strategy successfully used during the pandemic, includes activating the RED mechanism and reallocating European funds to protect employment and support the adaptation of the most affected companies.

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