The initial reaction to the tariff war announced by the United States was shock, leading many economic operators to suspend all decisions while awaiting clarity. However, the new American stance also generates opportunities, and France is well-positioned to take advantage of them.
Firstly, the internationalization model of French companies, which focuses on foreign establishment rather than exports, partially shields them from tariff increases. For instance, the revenue generated by French companies established in the US amounts to €341 billion (in 2022), significantly higher than the €45 billion in goods exports from France to the US (in 2023).
Moreover, a 10% increase in tariffs has an impact comparable to the same order of dollar depreciation cycles, which have never stopped European exports from thriving in the US. This is due to the fact that American domestic prices are on average between 20% and 30% higher than in France, giving French exporters some leeway to raise their prices there.
This reasoning would certainly not hold with increases of 30%, 50%, or even 200%. But there are strong corrective forces limiting Donald Trump's ability to go further with tariffs. The reactions to the tariff announcements on "Liberation Day," April 2, serve as evidence: Wall Street plummeted by around 10% (a "loss" of $6 trillion) and, in the 10-year Treasury bond market, an increase of 0.5 percentage points in interest rate was recorded in less than a week (a debt surcharge of $1.75 trillion for the US federal government). Pressures from American companies finally led to the recent tariff exemptions on computers and smartphones from China.
Antisocial protectionism
The Budget Lab at Yale University analyzed the economic consequences of the full application of the April 2 announcements: It would result in an additional 2.9% inflation in the US in the first year and a recessionary impact estimated at 0.6% of GDP. But, quite uniquely, this study predicts a positive impact of these measures on European growth, around 0.1%. Because the ongoing trade war creates new opportunities for Europeans and France.
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