Donald Trump's late-night social media posts threatening tariffs on Mexican, Canadian and Chinese goods have sent shockwaves through global markets, raising fears of a damaging trade war that could hit economies worldwide. European companies initially breathed a sigh of relief at being omitted from the incoming US president's immediate crosshairs, but analysts warned it may only be a matter of time before the continent faces similar measures.
Chris Turner, head of research for the UK and Europe at ING, said that while Europe's absence from Trump's first tariff post might be welcome, policymakers remain fearful that attention will soon turn to the European auto sector or tariffs more broadly. He added that the threat of further tariffs on China signals a direction of travel towards slower world trade as retaliation and higher export prices take hold.
The impact was felt immediately in European carmaker shares, with Stellantis falling 4.7%, Volkswagen down 2.6% and BMW losing 1.5%. Drinks companies like Diageo, which produces tequila in Mexico, also saw shares drop 1.4%. Falls in the pound and euro are expected even if Trump's focus remains elsewhere, given the knock-on effects on trading nations such as the UK and Germany.
For the UK, the threat presents a stark choice for Prime Minister Sir Keir Starmer: align with Trump or join Brussels in retaliation. David Henig, director of the UK trade policy project at the European Centre for International Political Economy, suggested a more nuanced approach, advocating closer EU trade ties alongside continued talks with the US on financial regulations, where London holds leverage. Starmer's recent tougher stance on China at the G20 may please Trump, though it appeared largely symbolic.
On a broader scale, global economic growth is imperilled as US companies also face tariff costs, with knock-on effects to the UK and Europe, the largest export destinations for both. Canada, Mexico and China bought over $1tn in US exports last year, and ING estimates that fully passed-on tariffs could cost American consumers up to $2,400 annually. The inflationary impact may force the Federal Reserve to keep interest rates high, strengthening the dollar against other major currencies.
