European Markets Tumble 2% After U.S. Launches Trade War and Targets EU and Key Trading Partners

Bridgette Randall
03 Feb, 2025
London

Stock market indexes in Europe dropped sharply amid a growing realization that the region's exports are likely to face higher trade barriers to the U.S. 

Benchmark indexes in Paris, Milan, Frankfurt, and London plunged between 1.3% and 1.7% after the U.S. slapped tariffs on shipments from its three largest trading partners. 

The latest measures include 25% tariffs on all manufactured goods from Mexico and Canada and an additional 10% tariffs on goods imported from China. 

The U.S. imports about $1.2 trillion of goods from its three largest trading partners, and the world's largest economy has run deficits for decades with its six key trade partners—Mexico, Canada, China, the European Union, Japan, and Korea.

The European Union exports over €500 billion in goods to the U.S. and imports about €345 billion from the world's largest economy, resulting in a trade surplus of €155 billion. 

The European Union's average annual trade surplus has ranged between €100 billion and €160 billion since 2015. 

In 2023, the United States was the largest partner for EU exports of goods (19.7%) and the second largest partner for EU imports of goods (13.7%), according to the latest annual statistics available from Eurostat.

Among EU member states, the Netherlands was the largest importer of goods from the United States, and Germany was the largest exporter of goods to the United States in 2023.

Tariffs are federal government taxes on foreign goods paid by U.S. consumers, and the new round of trade barriers will certainly stoke inflation and force the U.S. Federal Reserve to keep rates higher for longer.

The newly appointed Republican Party administration is seeking a halt of all illegal migrants from its two neighboring partners and curtailing of illegal shipments of dangerous drugs.

 

Europe Indexes and Yields

The DAX index decreased by 1.6% to 21,378.03; the CAC-40 index dropped 1.5% to 7,831.65; and the FTSE 100 index declined by 1.2% to 8,569.99. 

The yield on 10-year German bonds inched lower to 2.43%, French bonds declined to 3.15%, the UK gilts moved down to 4.54%, and Italian bonds edged higher to 3.56%.

The euro declined to $1.02; the British pound was lower at $1.23; and the U.S. dollar was higher and traded at 91.92 Swiss cents.

Brent crude increased $0.88 to $76.55 a barrel, and the Dutch TTF natural gas was higher by €0.17 to €49.91 per MWh.

 

Europe Stock Movers

Automobile makers and advanced semiconductor equipment makers led the decliners across Europe in Monday's trading. 

All leading automobile makers in the European Union declined, led by Mercedes-Benz Group AG, which fell 4.3% to €56.39; BMW plunged 4% to €75.42; Volkswagen AG dropped 5.8% to €95.55; and Stellantis NV fell 6% to €12.19.

Among leading tech equipment companies, Infineon Technologies AG decreased 4.2% to €30.74, and ASML Holding dropped 2.7% to €702.80.

Julius Baer Gruppe AG dropped 11% to CHF 56.70 despite the Swiss wealth management company posting strong fiscal year 2024 results, boosted by a substantial tax release.

The Swiss asset management company's new chief executive announced plans to trim its workforce by 5% as the company looks for ways to lower its operating costs.