European automakers took a hit on Tuesday after Donald Trump threatened to impose widespread tariffs on China, Mexico and Canada.
Late on Tuesday morning, shares of the German Volkswagen group fell 2.26%up to 80.40 euros, while those of Stellantis fell 4.54%up to 12.24 euros, following Donald Trump’s threats to impose tariffs on China, Mexico and Canada, and doubts about how these tariffs could affect business in Europe.
The president-elect said that would impose a 25% tax on all products that enter the country from Canada and Mexico, and an additional 10% tariff on goods from Chinaas one of his first acts as president of the United States, which is the largest importer of goods in the world, with Mexico, China and Canada being its three main suppliers.
The threat of tariffs, if applied, could cause a rise in food pricesautomobiles and other goods in the United States. Shares of the French auto parts manufacturer Valeo also fell 2.54%, while those of BMW fell 1.36% after Trump’s message was published on his social network Truth Social.
“On January 20, as one of my many first executive orders, I will sign all documents necessary to charge Mexico and Canada a 25% tariff about all products entering the United States, and its ridiculous open borders,” he wrote.
Why Trump’s plans could be bad for the European economy?
According to various economic analyses, there is a broad consensus that Trump’s previously proposed 10% universal tariff on all US imports could significantly disrupt European growth, intensify monetary policy divergence, and strain key trade-dependent sectors such as automobiles and chemicals.
The long-term effects on Europe’s economic resilience could be even more significant if tariffs lead to protracted trade conflicts, which would lead the European Central Bank (ECB) to respond with aggressive rate cuts to cushion the impact.
Data from the European Commission show that the European Union exported 502.3 billion euros in goods to the US. in 2023, which represents a fifth of all exports not from the European Union.
European exports to the US are led by machinery and vehicles (207.6 billion euros), chemicals (137.4 billion euros) and other manufactured products (103.7 billion euros), which together account for almost 90% of the bloc’s transatlantic exports.
As ‘Euronews’ Piero Cingari previously reported, 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 likely to be hardest hit.
Tariffs would take 1.5 percentage points off European growth
According to the Dutch bank, Trump’s tariffs would subtract approximately 1.5 percentage points from European growth, which would translate in potential economic loss of 260 billion euros based on the European GDP estimated for 2024 at 17.4 billion euros.
Should Europe’s growth falter under Trump’s tariffs, the European Central Bank (ECB) could be forced to respond aggressively, cutting rates to near zero in 2025. Conversely, the US Federal Reserve could continue raising rates, which would cause “one of the largest and most sustained monetary policy divergences“between the ECB and the Fed since the creation of the euro in 1999.
The likely result: a weaker euro, which could help offset some competitive disadvantages of European exporters, but would also increase import costs. Dirk Schumacher, head of European macroeconomic research at Natixis Corporate & Investment Banking Germany, suggests that a 10% tariff increase could reduce GDP by about 0.5% in Germany, 0.3% in France, 0.4% in Italy and 0.2% in Spain.
Schumacher warns that “the euro zone could go into recession in response to increased tariffs.
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