Global markets reel as Trump’s tariff threats trigger worst European stock slump in over a year
European equities plunged to their lowest levels since December 2024 on Monday, with the Stoxx Europe 600 Index nosediving 1.4% following former U.S. President Donald Trump’s renewed threats to impose tariffs on EU exports.
The selloff mirrors global market turmoil after Trump confirmed plans to levy tariffs on Canadian aluminum, Mexican steel, and Chinese electric vehicles—with Europe “next in line,” according to campaign statements.
Automakers bore the brunt of the market decline.
Stellantis saw its shares plummet 4.2%, making it the worst performer on Milan’s FTSE MIB.
Volkswagen fell 3.8% amid fears of a 25% U.S. import tariff, while German auto suppliers Continental and ZF Friedrichshafen dropped 3.1% and 2.9%, respectively.
JPMorgan strategist Vincent Juvyns warned that “automakers are the canary in the coal mine,” adding that a 10% transatlantic tariff could erase €7 billion from sector profits by 2026.
Trump’s proposed tariff plan, expected to take effect in the second quarter of 2025, includes a 15% global baseline tariff, 60%+ levies targeting Chinese electric vehicles and clean energy products, and across-the-board hikes for “non-reciprocal trading partners.”
The potential impact on European economies is significant, with Germany, France, and Italy facing risks due to their substantial U.S.-bound exports in key industries such as automotive, aerospace, and fashion.
Investor reactions to the tariff threats were swift. The German 10-year bond yield fell six basis points to 2.31% as traders sought safe-haven assets.
The euro declined 0.8% against the dollar to 1.0724, its lowest level since November 2024, while put options on the EURO STOXX 50 hit a six-month high.
Barclays strategist Mara Blumenthal emphasized that today’s supply chains are more integrated than in previous trade disputes, cautioning that a 15% tariff could inflict twice the GDP damage of Trump’s first trade war.
The European Commission has vowed to respond within 48 hours of any U.S. action, outlining three potential countermeasures: mirror tariffs of 25% on $45 billion worth of U.S. goods, a fast-tracked WTO challenge against Trump’s “national security” justification, and a €20 billion export subsidy fund to support affected manufacturers.
EU Trade Commissioner Valdis Dombrovskis reaffirmed the bloc’s readiness to take “strong and swift” measures.
The fallout extends beyond the automotive sector.
Luxury brands such as LVMH saw stock declines despite strong earnings, with analysts citing potential visa restrictions that could reduce U.S. tourist spending.
Renewable energy firms also suffered, with Siemens Energy sliding 3.9% following Trump’s vow to roll back clean-tech incentives. In the agricultural sector, French wheat futures dropped 1.8% on concerns over increased U.S. farm subsidies, while Italian Parmigiano Reggiano exporters braced for potential 35% dairy tariffs.
Comparisons to the 2018 trade war highlight the potential severity of the current situation. While the initial tariff rate in 2018 was 25% on $34 billion of Chinese goods, Trump’s latest proposal targets $300 billion worth of Chinese EVs with tariffs exceeding 60%
Recommend :
Canada Imposes 25% Tariffs on U.S Goods in Retaliation.
The EU, which took 90 days to respond to trade actions in 2018, has pledged a much faster 48-hour reaction this time.
Market volatility is also rising, with VIX futures climbing to 32.1, surpassing the peak of 25.6 seen in 2018. Volkswagen, which fell 12% in 2018’s third quarter, has already lost 15% month-to-date.
Three potential scenarios emerge from the escalating trade tensions. A diplomatic resolution before November remains the least likely at 20%, hinging on EU concessions on digital taxes.
A “managed escalation” scenario, with tit-for-tat tariffs below 10%, carries a 55% probability, keeping GDP impacts relatively contained.
The most severe outcome—a full trade war with tariffs exceeding 25%—poses a 25% risk, potentially leading to a €130 billion export loss and forcing the ECB to consider rate cuts by the third quarter.
Former ECB advisor Maria Demertzis cautioned that the central bank faces a difficult balancing act.
“They can’t cut rates if tariffs spike inflation, but growth demands stimulus,”
she said.
With Trump’s scheduled policy address on Thursday and the ECB’s emergency meeting on Friday, investors are bracing for further volatility in the days ahead.