The uncertainty stemming from the trade conflict initiated by reciprocal tariffs announced by U.S. President Donald Trump in early April could detract up to three-tenths from Spain's Gross Domestic Product (GDP) over the next three years, according to estimates from the Bank of Spain.

Additionally, the financial impact of the new trade policies from the U.S. administration could lead to another decline of three-tenths, as outlined in the latest Annual Report released by the institution.

This financial effect pertains to influences on markets, risk premiums, and exchange rates, among others, based on a GDP forecast that assumes the implementation of the reciprocal tariffs — rather than the current GDP.

Both impact estimates are not additive, as they overlap in certain aspects, as explained by Ángel Gavilán, the General Director of Economics at the Bank of Spain.

The commercial impact of the tariffs, which will depend on the level to which they are ultimately set, cannot be added to these estimates.

The Bank of Spain will provide more detailed information on the potential economic effects in the coming weeks.

To gauge the commercial impact, the Bank of Spain has constructed four scenarios: one with tariffs set at 10%, another reflecting the reciprocal tariffs announced on April 2, another considering tariffs and retaliations from other countries, and a fourth, more severe scenario accounting for a potential trade war between the United States and China.

The direct impact on GDP in these scenarios ranges from nearly zero (10% tariffs) to just over one-tenth (trade war).

If the tariffs announced on Liberation Day were to be implemented, the impact would be close to zero, while retaliatory measures from other countries could generate a one-tenth decline in GDP.

Gavilán stated that the overall adjustment may not be significant unless the consequences of the new tariffs are substantially amplified.

Moreover, the average effective tariff that Spain faces on its exports to the United States could increase sixfold, rising to 18%, should Trump follow through on his threat to impose reciprocal tariffs on the European Union and other regions, according to Bank of Spain estimates.

This indicator was at 3% before Liberation Day, the day when Trump announced the reciprocal tariffs, and currently stands at 12%, while it would ascend to 18% if the announced tariffs are implemented.

The 90-day period granted by the White House to suspend tariffs is still in effect, awaiting negotiations with various countries, with the threat of tariffs against the European Union reaching 20%.

Experts from the Bank of Spain indicate that Spain and the European economies would be more adversely affected by the escalation of the trade conflict initiated by the United States than by the imposition of reciprocal tariffs on their own.

According to them, 'for Spain and the European Economic and Monetary Union, the negative impact on GDP of a tightening of financial conditions or an increase in uncertainty caused by the escalation of the trade conflict would be quantitatively more significant than the deterioration of activity caused by an increase in tariffs if this disturbance were to be transmitted only through the commercial channel.'

However, the direct exposure of Spain to these tariffs is described as 'limited' by the institution’s experts, though it is notable in sectors such as machinery and transport equipment (27%), other manufactured goods (26%), chemical products (19%), olive oil (5%), and wine (2%).

Despite this limited direct exposure, the indirect exposure is greater due to the integration of Spain’s economy into global value chains, primarily through Spain's exports of intermediate goods to other countries, which subsequently become part of final products those countries export to the United States.

The Bank of Spain cautions in its report that estimating the possible macroeconomic impact of these factors is particularly complex, not only due to unknown details but also because it is not evident through which channels they will affect economic activity.

Furthermore, while the tariff measures have predominantly targeted goods thus far, experts caution against the possibility of an escalation of the trade conflict affecting international trade in services, a scenario which could particularly impact the tourism sector due to changes in demand and exchange rates.

The institution warns that affected countries may implement significant changes in their trade policies amongst themselves, such as strengthening certain regional trade alliances or, conversely, raising their tariffs against third countries to prevent redirection of trade flows away from the U.S. to their economies.

The Bank of Spain's experts do not predict through which channel the trade conflict will have the most significant incidence on economic activity and prices.

The most logical channel would be a disruption in the supply and demand of the affected countries, but it may not be the only one.

They further note that the increase in tariffs could lead to disruptions in global production and supply chains, potentially causing greater inflationary pressures, as seen during various stages of the COVID-19 pandemic.