Donald Trump’s announcement of new tariffs marks a turning point in transatlantic trade relations. By imposing a 20% tariff on imports from the European Union, the US president is rekindling protectionist tensions. Between economic concerns and geopolitical uncertainties, the repercussions of this decision are likely to be global. , director general of the Luxembourg Chamber of Commerce, gives his analysis.

Paperjam: How have you taken Donald Trump's announcements?

Carlo Thelen: Overall it wasn’t a big surprise because he had already announced this and during his first term in office he had already adopted a logic that was more geared towards protectionism than the free trade that we have always been used to with the Americans.

But in my opinion, yesterday [3 April] was really a black day for world trade. In terms of its scale, the announcement is historic. It represents a break with the principles that the Americans have always defended, namely free trade and multilateralism. After all, they were the initiators of the Marshall Plan, the General Agreement on Tariffs and Trade (GATT) and the WTO. All of this has always been supported by Washington as an opportunity for growth, wealth and job creation to advance globalisation and multilateralism. In that sense, this really is a brutal rupture, a historic shock. Especially because it comes at the worst possible time: we have just emerged from the covid-19 pandemic, we still have a war in Europe, supply chains have been disrupted, there’s massive inflation. We could have fought all that. Before Trump was elected, we had hoped to get out of all this by deepening our partnerships and engaging in new trade. There was hope of new economic growth. And all that has now been turned upside down.

Who will suffer the biggest impacts?

Americans first. Some experts estimate that there is a 35% chance that the United States will go into recession. They will have very little way of fighting this, because interest rates cannot be lowered and inflation will inevitably rise. They have to import a lot of things to be able to produce at home. So, in the end, it’s American consumers, businesses and investors who will suffer most. The impact will be global. I’d call it a lose-lose situation. Everyone’s going to lose in the trade war.

And in Europe?

We can already see how the markets are reacting since these announcements. The US market is collapsing and the US dollar is getting weaker. The European stock markets have held up well since Trump’s election. But it is clear that we are going to feel the impact, if only because the United States is the EU’s biggest trading partner. In Europe, we export over €500bn worth of goods to the United States and we import €350bn worth of goods from the United States as Europeans. So clearly there will be an impact. But these tariffs will come into force very soon, tomorrow, so there's no time to prepare. This will have an impact on supply chains and customs. There is no predictability and companies will surely have no other way than to pass on these tariffs to the end consumer.

Do you think this will drive some European companies to set up in the US?

I don’t know if Trump thinks that, but it’s not possible. Faced with such erratic and irrational decisions, it’s unlikely that an investor will take the decision to relocate. Relocating a factory takes months and months, and there’s no telling if things won’t change again by then. So I don’t think there will be any big changes at that level.

But what worries me a bit more is the unpredictability for the markets and the financial system, and the impact this can have.

In Europe, which sectors will be most affected?

We have the car industry and wine in Europe, particularly French wine. Now we have to see what the European response will be. I believe that the arsenal is ready and that the EU’s strategy of waiting-and-seeing is the right one. Many sectors are already prepared, such as aluminium and steel. But the EU is still trying to negotiate while it still can. We will have to respond in a proportionate and targeted way and show that Europe still sees America as an important partner.

In Luxembourg, which has a globally oriented economy, how do we deal with these impacts?

Luxembourg imports a lot of things in order to create added value on imported goods and services and then sell them on. That’s how the Luxembourg economy works. We always advocate free trade and the elimination of barriers and that’s why we’re completely in favour of multilateralism, free trade and openness to healthy globalisation with clear trade rules for everyone.

In 2024, we exported €440m worth of goods to the United States, much of it aluminium and steel. These are already being affected by the 25% tariffs, but this remains under control, as these are high value-added goods that the US needs, even if their prices rise.

We have a huge number of automotive suppliers in Luxembourg, and there is hardly a car in the world that doesn’t have at least one part made in Luxembourg. We’ll have to see how the carmakers who buy from our manufacturers react. It could be a big impact.

Some of our exports concern high added-value products or services. These are very special goods, particularly parts in industry, that Americans really need and I think they will continue to buy them even if they become more expensive.

How might the financial centre cope with this change?

Luxembourg is a major international financial centre that does not like volatility, and an America going into recession would have a greater impact on the investment fund industry. On this point, we are second in the world, so we hope that there won’t be too much upheaval and turbulence in the financial markets. At the moment we don’t really have any indication, but it’s clear that the financial markets are becoming increasingly nervous and turbulent. The effects for our financial sector will be negative.

How can Europe position itself in this balance of power?

I think that if the Europeans have to respond in a targeted way, there really wouldn’t be any negotiations possible, so we could quickly get into a spiral with tariffs, counter-tariffs, increases… but we’re not there yet. We remain somewhat optimistic and hopeful. In terms of world imports, the United States accounts for only 13% of all imports. So there’s still 87% going elsewhere. I think it’s important that Europe continues to look for other partners, which it is already doing, and Luxembourg too.

And at the Chamber of Commerce, what is your position?

We organise a lot of economic missions all over the world. There’s Mercosur, a mission to Brazil, we’re going to Japan, we have contacts in Canada, we have good contacts in Asia in general. So there are other opportunities, although America remains a major partner. We even have missions planned for October in the United States and we don’t want to cut any ties, because we’re not against the Americans.

Do you think Trump is capable of going even further? Should we anticipate a domino effect with other trade or sectoral agreements being called into question?

It’s hard to say. He could very well go back on these announcements next week. It’s a completely erratic and volatile environment. But we hope that sanity returns! Because I think that when the Americans realise that this is completely counterproductive and that they are the ones who are going to suffer first, perhaps there will be a change. The markets are reacting faster, the dollar is weakening. But it’s very difficult to look ahead and make predictions.

Corinne Cahen (DP) says we shouldn’t panic.

Yes, yes. That’s what I said too. We mustn’t panic, even though we’re dealing with a serious issue. A lot of people are going to lose a lot of money because we need it to invest in artificial intelligence, defence, schools, infrastructure and so on. But in any case, in Europe, I’d say we need to stay calm, prepare and consider various measures in response.

This article in French.