European Auto Sector Hit Hard As Trump Threatens 30% EU Tariffs: Report

European stock markets, led by automobiles, experienced a big decline on Monday as investors reacted nervously to US President Donald Trump's renewed threats of imposing significant tariffs on European Union (EU) and Mexican imports, news agency Reuters reported.

Trump's Tariff Ultimatum Rattles Markets

Over the weekend, President Trump announced plans to implement a 30 per cent tariff on goods imported from the European Union and Mexico, with an effective date of August 1. This latest threat emerged after several weeks of unsuccessful negotiations with key US trading partners failed to produce comprehensive trade agreements.

Market analysts view the announcement with cautious skepticism. "The market is definitely taking the news negatively, but it's not pricing it in…they are taking this with a pinch of salt and assuming that it's just the start of a conversation and that over the next few weeks the news flow will gradually improve," said Michael Field, chief equity market strategist EMEA at Morningstar.

The benchmark STOXX 600 index dropped 0.5 per cent to 544.74 points by 0830 GMT, reflecting widespread concern across continental European markets. Most regional indices followed suit with declines, though the UK's FTSE 100 bucked the trend with a modest 0.2 per cent gain.

Automotive Sector Bears Brunt

European automobile stocks suffered the steepest losses, falling 1.5 per cent as investors recognised the sector's vulnerability to the proposed tariffs. The automotive industry faces particular uncertainty as Trump's announcement provided no indication of special treatment for vehicle imports, which currently face a 27.5 per cent duty.

Major German automakers experienced significant declines: Porsche shares dropped 2.4 per cent, while both BMW and Mercedes-Benz fell 2 per cent. Volkswagen completed the sector's losses with a 1.9 per cent decrease.

EU Responds

The European Union demonstrated a strategic response to Trump's tariff threats on Sunday, announcing an extension of its suspended countermeasures against US tariffs until early August while continuing diplomatic efforts toward a negotiated resolution.

Italy's Foreign Minister Antonio Tajani revealed in a newspaper interview that the EU has prepared a comprehensive list of retaliatory tariffs valued at over 21 billion euros ($24.5 billion) targeting US goods if bilateral negotiations collapse. 

EU trade commissioner Maros Sefcovic emphasised the bloc's dual approach of seeking favorable trade agreements while simultaneously preparing defensive measures.

Field praised the EU's balanced strategy, noting "they're still playing hardball a little bit in saying that if push comes to shove down the line, we still have a plan."

Analysts Revise Growth Forecasts

The escalating trade tensions prompted Morgan Stanley to adjust its outlook for European equity markets. The investment bank downgraded its 2025 MSCI Europe local currency earnings per share growth forecast from +1.3 per cent to -1.0 per cent, citing mounting uncertainties related to currency fluctuations and potential tariff impacts.