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A trade war with Europe would damage the US economy, policy analysts say

  • President Trump's tough talk on international trade has the EU responding that it will retaliate against any sanctions the U.S. imposes with countermeasures.
  • "Our mood is increasingly combative" on the topic of trade, EU Commission President Jean-Claude Juncker said.
  • Although these sanctions have yet to be officially implemented, analysts say a potential trade war with Europe would be detrimental to the economy.

President Donald Trump's tough stance on international trade has the European Union replying that it would retaliate against the sanctions.

The contentious comments arose after Trump declared intentions to limit steel imports to protect domestic steel companies.

EU Commission President Jean-Claude Juncker responded by saying, "Our mood is increasingly combative" and says the EU will react with countermeasures by imposing limits on bourbon, a major export from Senate Majority Leader Mitch McConnell's state of Kentucky.

Although sanctions have yet to be officially implemented, analysts say a potential trade war with Europe would be detrimental to the economy.

"It's been a while since we've had a good multilateral trade agreement or even a major regional trade agreement," Carla Hills, a former trade representative under President George H.W. Bush, told CNBC's "Closing Bell" on Friday. "We have indicated that we're not interested in them, and that really hurts our nation's economy."

Hills specifically referenced the free-trade deal between Japan and Europe, which would hurt American industries.

"We have pulled out of the Trans-Pacific Partnership, and now we see Japan making a deal with Europe, which will have an adverse effect upon a number of our industries as Japan lowers its tariffs to our competitors," Hills said. "We are in effect taxed when we have the opportunity to sell."

Despite Juncker's strong comment on potential retaliation, Eurasia Group Senior Advisor David Gordon says America's behavior on trade isn't isolating, but its rhetoric suggests otherwise.

"I think the U.S. is isolated rhetorically, and EU Commission President Juncker laid down a tough line," Gordon said. "I think while other countries aren't behaving that much differently than we are, they are not self-isolating themselves through rhetoric."

Although some American companies may want stricter regulations on "dumping," which is when the export by a country charges a lower price in the foreign market than the price charged in the domestic market, Hills maintains that an abrasive response would be harmful to the economy.

"I think it's very difficult to say that without evaluating what has gone on ... we're going to take action against particular countries on particular products," Hills said.

"I would like to see us work within the rules that, by the way, we've led with for 70 years, whether under Democrat or Republican administrations. ... We have been the leaders in developing rule of law governing trade. For us to walk back from that, the largest economy in the world, that is going to hurt us badly."