European automakers saw their stock prices drop on Tuesday following threats from Donald Trump to impose sweeping tariffs on China, Mexico, and Canada. Shares of Volkswagen Group fell 2.26% to €80.40, and Stellantis saw a 4.54% decrease, bringing its stock down to €12.24. The drop reflects investor concerns about how Trump’s proposed tariffs might impact European businesses, particularly in the automotive sector.
Trump, who is set to take office in January, announced plans to introduce a 25% tariff on all products from Mexico and Canada and an additional 10% tariff on Chinese goods. As the world’s largest importer, the US relies heavily on these three countries, which are among its top suppliers. If implemented, these tariffs could increase the cost of goods such as food, cars, and other consumer products in the US.
In addition to the declines in Volkswagen and Stellantis shares, French car parts maker Valeo saw a 2.54% drop, while BMW stock fell 1.36%. Investors are wary that these tariffs could have a significant impact on European exports and the broader economy.
Economic analyses suggest that Trump’s proposed tariffs could severely disrupt European growth. A universal 10% tariff on US imports could exacerbate trade tensions, particularly affecting sectors like autos and chemicals, which are vital to European economies. The European Commission reported that in 2023, the EU exported €502.3bn worth of goods to the US, with machinery, vehicles, and chemicals comprising nearly 90% of those exports. Countries such as Germany and the Netherlands, which rely heavily on trade, would likely face the most significant economic losses, with some analysts predicting a potential €260bn loss to Europe’s GDP.
If the tariffs lead to a slowdown in European growth, the European Central Bank (ECB) may be forced to take aggressive action, possibly lowering interest rates to near zero by 2025. Meanwhile, the US Federal Reserve may continue raising rates, leading to a divergence in monetary policies between the ECB and the Fed, which could result in a weaker euro. While a weaker euro may provide some relief for European exporters, it would also increase the cost of imports.
Analysts warn that these tariff increases could have a ripple effect across the eurozone, potentially pushing the region into recession. In particular, countries like Germany, France, Italy, and Spain could see GDP growth reductions of up to 0.5%, further intensifying economic challenges for Europe.