The new trade barriers, coupled with heightened policy uncertainty, are set to slow investment, dampen consumer spending, and put further strain on industries reliant on exports to the US. The US administration has imposed tariffs of 20% on most European Union (EU) goods and 10% on UK exports to the US, higher than previously anticipated. 

While steel, aluminum, and car imports remain subject to a 25% tariff, the new measures expand trade restrictions to a broader range of products. Some categories remain exempt, but the announced EU tariffs are double Barclays’ initial projections, while the UK tariffs align with their expectations.

These tariffs, along with a surge in trade policy uncertainty in March, have prompted Barclays to review its economic forecasts. 

European governments are expected to respond with measures aimed at supporting affected industries and mitigating job losses. 

However, the uncertainty surrounding trade policy is already delaying investment and consumption decisions, leading to a slowdown in domestic demand. Germany and Italy, which have large trade surpluses with the US, are likely to feel the most impact, while France and Spain could see somewhat smaller effects. 

The eurozone and the UK may also consider retaliatory tariffs, but current estimates assume a limited response, with an average 5% tariff imposed on US imports. Barclays’ analysis breaks down the impact of tariffs into two key economic channels: the direct trade channel and the uncertainty channel.

Through the trade channel, the new tariffs could lower real GDP growth in the eurozone by around 0.8 percentage points over 2025-2026, while the impact on UK growth remains at approximately 0.1 percentage points.  This aligns with broader global trade trends, where the US has already imposed higher tariffs on Chinese goods and has faced retaliatory measures from Beijing.

The uncertainty channel, however, presents an even greater risk. In February, the trade policy uncertainty index stood at 470—already elevated compared to historical levels—but it surged to a record high of 603 in March. 

This spike is expected to delay investment and hiring, further slowing economic activity. Barclays’ estimates suggest that the combination of tariffs and uncertainty could shave 1.9 percentage points off eurozone growth and 1.5 percentage points off UK growth by 2026.

With these factors in play, the risk of recession in the eurozone and the UK has risen sharply. Barclays’ current forecasts already account for a 1.1 percentage point drag on growth due to trade disruptions. However, further downward revisions are possible as governments decide how to respond to the US measures.

Adding to the uncertainty, the US administration has left the door open for negotiations, which could potentially ease some of the economic damage. However, prolonged talks would keep uncertainty elevated, limiting any immediate relief for businesses and consumers.