In a sharply worded report released on July 18, 2025, Germany’s central bank (Bundesbank) warned that a Europe-wide recession is “highly likely” if the Trump administration moves forward with its proposed tariff package targeting China and the European Union.
The report was published ahead of this week’s G7 summit in Quebec, Canada, and marks the most urgent institutional alarm yet over the consequences of Washington’s escalating protectionist agenda.
💣 Threat of an all-out trade war
According to Bundesbank analysts, the proposed U.S. tariffs would severely hit Europe’s industrial base — especially Germany’s exports of automobiles, electronics, and chemicals. Germany, already struggling with two consecutive quarters of sluggish growth, could enter technical recession by the end of September.
“Further escalation of trade tensions with the United States could push the eurozone economy into recession faster than previously projected,” the report stated.
The proposed U.S. tariff package includes 30 to 35 percent duties on electric vehicles, tech components, and European steel. EU officials have called them “punitive tariffs” designed to hurt Europe’s economic core.
📉 Euro tumbles, investor anxiety grows
Following the Bundesbank announcement, the euro fell to an 18-month low against the U.S. dollar. European stock markets dropped sharply as investors rushed into safe havens like gold and U.S. Treasury bonds.
A separate report from Goldman Sachs warned that the combination of steep tariffs and an unfavorable exchange rate could shrink eurozone GDP by more than 1.2 percent by year’s end.
⚠️ EU responds with emergency diplomacy
The European Commission reacted immediately, calling for urgent negotiations with Washington to prevent a transatlantic economic crisis. Officials in Brussels warned that the tariffs could devastate not only European industry but also global supply chains.
“This is not just a threat to Germany or France. It’s a blow to global economic stability,” said EU Trade Commissioner Valdis Dombrovskis.
According to senior sources in Brussels, European Commission President Ursula von der Leyen has requested a direct meeting with President Trump at the G7 summit in an effort to de-escalate the growing tensions.
🌍 A second crisis after the pandemic?
European economists are now warning of a potential return to crisis conditions similar to 2020. This time, however, the cause would be aggressive trade policy, not a public health emergency. With inflation still volatile and interest rates high, any new shock could derail the fragile recovery across the continent.
Countries in Eastern Europe, including Poland, Hungary, and Romania, are especially vulnerable due to their reliance on German exports. Analysts forecast immediate drops in industrial output and employment if the tariff plan proceeds.
