Shares Plummet Amid Tariff Concerns
European automakers, including Volkswagen, Stellantis, Valeo, and BMW, experienced significant stock declines following U.S. President-elect Donald Trump’s announcement of potential tariffs on China, Mexico, and Canada. The proposed 25% tariff on imports from Mexico and Canada, along with a 10% tariff on Chinese goods, has alarmed investors, raising concerns over European businesses heavily reliant on the U.S. market.
Volkswagen’s stock fell 2.26% to €80.40, while Stellantis saw a 4.54% drop to €12.24. Valeo and BMW also faced losses of 2.54% and 1.36%, respectively. Analysts fear that these tariffs will increase manufacturing costs, disrupt trade, and reduce demand for European-made vehicles.
Economic Impact: European Exports to the U.S. at Risk
The European Commission reports that in 2023, the EU exported €502.3 billion worth of goods to the U.S., with machinery and vehicles accounting for the largest share. If tariffs are imposed, European products could become more expensive in the U.S. market, reducing their competitiveness.
Analysts from ABN Amro warn that a 10% tariff on EU exports could significantly damage trade, particularly for economies like Germany and the Netherlands, which rely heavily on exports to the U.S. This could lead to substantial economic losses across the region.
Potential GDP Decline and Economic Slowdown in Europe
According to Natixis analyst Dirk Schumacher, a 10% U.S. tariff on European goods could result in a 0.5% GDP decline for Germany, 0.3% for France, 0.4% for Italy, and 0.2% for Spain. These losses could accumulate to a total €260 billion reduction in Europe’s 2024 GDP (€17.4 trillion projected).
The European Central Bank (ECB) may respond by cutting interest rates, potentially pushing them toward zero to counter the slowdown. Meanwhile, the U.S. Federal Reserve is expected to continue raising interest rates, creating a monetary policy divergence between the regions. A weaker euro could make European exports cheaper but also increase import costs, exacerbating economic challenges.
Long-Term Economic Risks: Recession and Trade Conflicts
The long-term consequences of these tariffs could be severe for Europe. The uncertainty surrounding U.S.-EU trade relations might fuel a prolonged trade war, further disrupting global supply chains and economic stability.
A weaker euro might benefit European exporters, making their products more attractive globally. However, this could be offset by higher import costs, impacting industries that rely on raw materials and components from outside the EU.
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