US tariff threats exacerbate Europe’s economic difficulties

Observers believe that the US move will hit key European industries hard, disrupt the market, hit business confidence and investment, and further exacerbate Europe’s economic growth difficulties.

The situation of the steel and automobile industries has worsened

Observers pointed out that the US “tariff stick” threat has made the already difficult economies of many European countries “worse”, and important industries such as steel and automobiles are the first to bear the brunt.

The US’s 25% steel and aluminum tariff will greatly affect European product exports, causing the situation of the European steel industry to further deteriorate. According to data from the European Steel Industry Association, the United States is the second largest export market for EU steel producers, and EU exports to the United States account for about 16% of the EU’s total steel exports in 2024.

Henrik Adam, chairman of the European Steel Industry Association, said that under the impact of US tariffs, the EU will lose up to 3.7 million tons of steel exports to the United States each year, and most of them cannot be compensated by EU exports to other markets. He bluntly said: “This will have a devastating impact on the European steel industry.”

The European automotive industry is also facing a life-and-death challenge. Once the United States imposes a tariff of about 25% on imported cars, the competitiveness of European cars in the US market will decline significantly, threatening the long-term development and transformation of the entire industry. Moody’s, an international credit rating agency, pointed out that about half of the European brand cars sold in the United States are imported into the US market, among which German Volkswagen, Swedish Volvo and other European car brands with large import shares and sales in the United States will be more sensitive to tariffs.

Germany is the EU country with the highest volume of automobile exports to the United States. The German Association of the Automotive Industry strongly opposes the tariff measures planned by the US government. The association pointed out that imposing higher tariffs on EU cars harms the interests of both Europe and the United States, and isolationism will only result in a lose-lose situation. Global trade conflicts pose great risks to the world economy, and the impact of tariffs on the automotive industry will affect the entire industrial chain, bringing greater burdens to companies and consumers.

Increased uncertainty in financial markets and investments

The impact of US tariff measures on the European economy is not limited to trade, but will also bring greater fluctuations to European stock and foreign exchange markets. Recently, news about US tariffs has hit the European market many times. On February 3, the first trading day after Trump announced tariffs on products imported from Canada, Mexico and other countries, European auto stocks fluctuated significantly, and the European Stoxx 600 index, which measures the performance of European stock markets, recorded the largest single-day drop in 2025; on February 10, after Trump announced a 25% tariff on all US imported steel and aluminum, the stock prices of related industries in Europe fell.

Naim Aslam, chief investment officer of Zay Capital Markets in the UK, pointed out that the European economy is highly related to US trade policy, and the shift in trade policy has deepened investors’ doubts about future prospects, which is the main reason for the decline in European stock indexes.

In the foreign exchange market, the introduction of tariff policies has increased market risk aversion and inflation expectations, pushing the US dollar to strengthen and the euro to fall. Analysts pointed out that although the depreciation of the euro against the US dollar may stimulate exports in the short term, the high tariffs set by the United States may make it difficult to reflect the trade advantages brought by the depreciation of the euro.

At the same time, Europe needs to import energy and other raw materials and semi-finished products denominated in US dollars at higher prices, which will lead to rising inflationary pressure in the eurozone and push up corporate production and people’s living costs.

In addition, the Swiss Union Private Bank published an article pointing out that the uncertainty of tariffs threatens investment and growth more than the tariffs themselves. If the global economy is in trouble, the biggest blow may not be trade, but business confidence. The Oxford Economics Institute in the UK believes that the intensification of trade frictions between Europe and the United States will affect European investment. The agency predicts that by the end of 2027, the level of private investment in the eurozone will drop by nearly 2 percentage points due to trade frictions.

The outlook for European economic growth is bleak

Many Europeans are worried that the US tariff policy will further prompt some companies to relocate their production lines from the European continent to the United States, exacerbating the outflow of important European industries. In a recent economic bulletin, the European Central Bank warned that global trade frictions and regulatory barriers have intensified the drag on economic growth in the eurozone, and the new tariff policy is bringing challenges to economic and trade development.

In response to the impact of tariffs, some European companies said they are considering increasing investment in the United States. According to Reuters, French Michelin Tire Company plans to accelerate investment in the United States, and French luxury giant LVMH Group is also willing to increase production in the United States. Some analysts pointed out that tariffs in the automotive industry will prompt German automakers Porsche and Audi to set up factories in the United States.

European Commission Trade Commissioner Dombrovskis recently said at the Eurogroup press conference that the uncertainty brought about by US trade policies has greatly increased and has a negative impact on global economic participants, including the European Union.

In his view, the uncertainty of US policies has, on the one hand, restricted investment and weakened the prospect of external stimulus for the EU economy; on the other hand, energy prices have risen again against this background, dragging down the prospects for economic recovery in Europe, and the EU economic growth rate is expected to be lower than its autumn forecast.

“An imminent new trade war may push the eurozone economy from slow growth to recession, and European economic growth is expected to remain sluggish in 2025 and 2026.” In an article published on the official website of ING Group, ING economist Ruben De Wit and senior economist Inga Fechner said that protectionism is generally not conducive to economic development, especially for export-oriented economies. Even before the tariffs take effect, uncertainty associated with protectionist trade policies will have an impact on market sentiment.

“The impact of Trump’s second term on the European economy may be more severe than his first term,” the article said.