As hoteliers across Europe serve breakfast this morning, many will find themselves involuntarily counting the numbers of American guests at the table.
With April ushering in president Trump’s new tariffs, and with it, a world of uncertainty, pressing issues for Europe include not only the prospects for incoming U.S. tourism, but imminent macroeconomic shocks and vacillating sentiment around travel and consumer spending.
The immediate reaction from many economists on both sides of the pond has been one of short-term pessimism in the face of Trump’s ‘Liberation Day,’ with “higher than expected” reciprocal tariffs being imposed on the U.S.’ trading partners. Goldman Sachs says that combined tariffs average out to 18.3 percent, higher than the 15 percent it had factored into its forecasts.
The rationale for the taxes is ostensibly to drive the onshoring of U.S. manufacturing, as well as correcting perceived “unfair trade practices,” says James Knightley, chief international economist at ING. However, Trump’s “near-term need for the tariff revenues to give him the fiscal room to extend and expand his 2017 tax cuts suggests he is not going to back down swiftly,” Knightley adds, countering the view that the tariffs might be a negotiating bluff that will be quickly set aside.
Consumer Impact
Consumers will be ostensibly in the front line when it comes to taking the tariff hit – both in the US and globally, the data suggests. The indiscriminate nature of “tariffs on everything” means that prices in the US will rise for items including food, energy, clothing and household goods, if they are fully enacted. However, the impact will be felt most by the struggling portion of society already suffering due to the last two years of inflationary pressures. ING calculates that the tariffs could raise prices for the average consumer by 2.5 percent, implying $1,350 of extra costs per person annually.
Europe’s hoteliers may find some comfort in the fact that this does not fit the consumer profile that fills hotels in Positano and San Tropez each summer. Instead, U.S. holidaymakers in Europe are more likely to come from the top 20 percent of households that have either benefitted from or been mostly immune to higher interest rates in recent times due to enjoying a greater proportion of savings than mortgage exposure. Earning over $200,000 annually on average, they have also been rewarded by soaring stock markets.
Currency Prospects
But the middle classes are not immune to all price shocks, and the bumpy outlook for equities and the dollar could be a cause for concern. The currency’s growing weakness in recent months has been compounded by sharp falls since the tariff announcement, which Jonas Goltermann, deputy chief markets economist at Capital Economics, calls “the most surprising aspect of the market reaction.” Global economic uncertainty can often raise the dollar’s safe-haven status, while U.S. tariffs would also ostensibly prompt a flight to the dollar. He suggests that the dollar’s drop may be because “the U.S. tariffs are larger [than expected] and the prospect of retaliation from trade partners is greater,” but also because “there is a growing sense that the U.S. is really shooting itself in the foot with all this, most egregiously with tariffs, but also with other policy processes and the unpredictable way this is coming about, raising the risk of recession.”
Rothschild research reports that “Trump wants a weaker dollar to make America great again”, ostensibly to drive its export market. However, the prospect is a double-edged sword for the country’s reputation and its ability to do business in a global economy. Equally, currency fluctuations have many moving parts: if signs of policy success strengthen the dollar once again, it would ironically make U.S. consumers largely immune to the price shifts caused by tariffs, reducing the ‘punishment’ factor on other countries or the impetus to onshore U.S. manufacturing.
European Impact
Whatever the fate of the currency, many US consumers have already made their minds up that they will not be heading to Europe this summer, according to data from the European Travel Commission. A report released in February noted that the share of U.S. travelers planning to book vacations in Europe has fallen from 45 percent in 2024 to 37 percent in 2025, the lowest level since 2021. The report cites cost as the most pressing factor, followed by increasing interest in domestic travel. In crunching that data, Forbes suggests that this could reduce US tourism inflows to Europe by at least half a million people this summer. Says Eduardo Santander, the ETC’s CEO: “The decline in U.S. travel sentiment towards Europe reflects broader economic pressures, political uncertainty and evolving consumer preferences.”
If the European industry was hoping that Asian travelers, particularly Chinese ones – who had not yet fully returned post-Covid – might fill the gap left by Americans, tariffs again represent bad news. Asia is ostensibly the region most impacted, with a tariff rate of 54 percent imposed on China, while the likes of Cambodia and Vietnam have also been “punished” for low-cost exports including clothing and household goods. “This brings us close to the ‘worst case scenario’ of the 60 percent tariffs Trump threatened on the campaign trail,” said Lynn Song, ING’s chief economist, Greater China. Song believes that China will come up with a strong response, “both in terms of domestic stimulus and potential retaliation.” Adds Mark Williams, Capital Economics chief Asia economist: “The People's Bank of China has set a notably weak fix for the renminbi (RMB) [since the tariff announcement], and the RMB has weakened against the dollar and other currencies. A weakened currency would reduce the impact on China’s GDP to the lower end, around 0.5 percent of GDP, while a stronger currency could see tariffs impact GDP by 1 percent.”
Setting the source nation of travelers to Europe aside, the continent will have other factors to consider in a high-tariff environment. The European real estate industry has been delaying capital expenditure on properties during the last three years of higher inflation; sticky construction costs could worsen this trend. The industry’s reliance on steel and aluminium, as well as materials like gypsum, of which the UK, for one, is a net importer, could all be caught in the tariff cross-fire. Ongoing labour shortages prompting wage inflation also affect the bottom line.
The upside of further inflation could be faster rate cutting programs from both the Bank of England and the European Central Bank. UK gilt yields are already tumbling, suggesting investors are betting on UK interest rate cuts. There may also be more intra-Europe travel, a trend that Accor chairman & CEO Sebastien Bazin tipped at the IHIF EMEA earlier this week. He predicted that domestic travel would continue to grow on the continent, while “international travelers will travel less, but will stay longer, by around two days.”
At the conference, Bazin closed with an “ask” that will resonate with hoteliers today thinking about the outlook for U.S. inflows. “Despite geopolitics, despite the decisions of our leaders, can you please welcome the people of America even more warmly than before when they come to Europe?” he asked the IHIF audience. “Let’s leave the leaders to do what they do.”