European auto stocks slide as investors consider Trump tariffs threat

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Late Tuesday morning, shares in Germany’s Volkswagen Group fell 2.26% to €80,40, while Stellantis’ stock dropped 4.54% to €12,24, as investors weighed how Trump’s proposed tariffs on China, Mexico and Canada could hit business in Europe.

The President-elect said he would impost a 25% tax on all products entering the country from Canada and Mexico, and an additional 10% tariff on goods from China as one of his first acts as president of the US.

The US is the largest importer of goods in the world, with Mexico, China and Canada its top three suppliers according to the latest census data.

The threatened tariffs – if implemented – risk pushing prices for food, autos and other goods in the US up.

Shares in French car parts maker Valeo also dropped by 2.54%, while BMW stock declined by 1.36% following the update on Trump’s Truth Social platform.

“On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders,” he wrote.

Why Trump’s plans for tariffs could be bad for Europe’s economy?

According to several economic analyses, there is broad agreement that Trump’s previously proposed 10% universal tariff on all US imports may significantly disrupt European growth, intensify monetary policy divergence, and strain key trade-dependent sectors such as autos and chemicals.

The long-term effects on Europe’s economic resilience could prove even more significant if tariffs lead to protracted trade conflicts, prompting the European Central Bank (ECB) to respond with aggressive rate cuts to cushion the impact.

Data from the European Commission shows that the European Union exported €502.3bn in goods to the US in 2023, making up a fifth of all non-European Union exports.

European exports to the US are led by machinery and vehicles (€207.6bn), chemicals (€137.4bn), and other manufactured goods (€103.7bn), which together comprise nearly 90% of the bloc’s transatlantic exports.

As previously reported by Euronews’ Piero Cingari, ABN Amro analysts, including head of macro research Bill Diviney, warn that tariffs “would cause a collapse in exports to the US”, with trade-oriented economies such as Germany and the Netherlands most likely to be the hardest hit.

According to the Dutch bank, Trump’s tariffs would shave approximately 1.5 percentage points off European growth, translating to a potential €260bn economic loss based on Europe’s estimated 2024 GDP of €17.4tn.

Should Europe’s growth falter under Trump’s tariffs, the European Central Bank (ECB) may be compelled to respond aggressively, slashing rates to near zero by 2025.

In contrast, the US Federal Reserve may continue raising rates, leading to “one of the biggest and most sustained monetary policy divergences” between the ECB and the Fed since the euro’s inception in 1999.

The likely outcome: a weaker euro, which could help offset some competitive disadvantages for European exporters but would also increase import costs.

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Dirk Schumacher, head of European macro research at Natixis Corporate & Investment Banking Germany, suggests that a 10% tariff increase could reduce GDP by approximately 0.5% in Germany, 0.3% in France, 0.4% in Italy, and 0.2% in Spain.

Schumacher warns that “the euro area could slide into recession in response to higher tariffs”.