Trump's tariff threat sinks European stocks, auto sector hit hardest
What's the story
European shares fell sharply on Monday, with the automobile sector taking a major hit. The pan-European STOXX 600 index was down by 0.5% at 544.74 points as of 8:30am GMT (2:00pm IST). This comes after US President Donald Trump threatened to impose a 30% tariff on imports from the EU and Mexico starting August 1, in response to stalled trade negotiations with major US trading partners.
Market impact
Automobile sector fell by 1.5%
The European automobile sector was the hardest hit by Trump's tariff threat, falling by 1.5%. Major car manufacturers such as Porsche dropped by 2.4%, while BMW and Mercedes-Benz each fell by 2%. Volkswagen's shares also fell by 1.9%. This decline comes amid rising concerns over a potential trade war between the US and Europe due to Trump's proposed tariffs on automobiles.
Diplomatic reaction
EU extends suspension of countermeasures against US tariffs
In response to Trump's tariff threat, the EU announced on Sunday that it would extend its suspension of countermeasures against US tariffs until early August. The bloc also plans to continue pushing for a negotiated settlement. Italy's Foreign Minister, Antonio Tajani, revealed in a newspaper interview that the EU has already drawn up a list of tariffs worth over €21 billion ($24.5 billion) on US goods if no agreement is reached between both sides.
Trade negotiations
Aim for a favorable trade agreement with US
EU Trade Commissioner Maros Sefcovic said that the bloc is looking for a favorable trade agreement with the US. He also indicated that they are preparing countermeasures in case talks fail. Michael Field, Chief Equity Market Strategist EMEA at Morningstar, said, "The market is definitely taking the news negatively," but investors aren't fully pricing it in yet.
Information
Morgan Stanley revises Europe earnings growth forecast
Amid the ongoing tariff uncertainties, Morgan Stanley has revised its 2025 MSCI Europe local currency earnings per share growth forecast from +1.3% to -1.0%. The revision comes as a response to potential economic impact of Trump's proposed tariffs on imports from the EU and Mexico.