Although the full scale of new U.S. tariffs targeting European imports remains unclear, concerns are mounting that they will significantly impact the bloc’s economy.

BRUSSELS, Feb. 23 (Xinhua) — In a recent report, the European Central Bank (ECB) highlighted trade tariffs as one of the European economy’s major challenges. This assessment came just days after the U.S. administration decided to slap a 25 percent tariff on steel and aluminum imports, along with additional levies on cars, semiconductors and pharmaceuticals.

Although the full scale of new U.S. tariffs targeting European imports remains unclear, concerns are mounting that they will significantly impact the bloc’s economy.

AN EXISTENTIAL THREAT

The steel industry in the EU, already struggling with high energy costs and weaker demand, has been thrown into disarray following Washington’s tariff announcement.

To add insult to injury, the new steel tariff, according to Henrik Adam, president of the European Steel Association, will “inevitably push EU steel capacity into additional idling and, ultimately, closure.”

In a statement released by the association on Feb. 11, Adam said that the EU could lose up to 3.7 million tonnes of steel exports to the United States as a result of the new tariff policy and that additional steel products from third countries will find their way into the European market, worsening the already precarious situation for the European steel industry.

There is little the EU could do to deflect the implications as the United States is the second-biggest export market for EU steel producers, representing 16 percent of the total EU steel exports in 2024, the statement said.

According to Adam, a total of 9 million tonnes of capacity and over 18,000 jobs were lost in the European steel industry in 2024.

On Feb. 18, U.S. President Donald Trump announced plans to impose a 25 percent tariff on automobile imports, a policy that poses significant challenges to the European automotive industry.

“Germany’s Volkswagen, Sweden’s Volvo and the U.S.-European conglomerate Stellantis are most exposed to potential new tariffs because of their greater reliance on U.S. sales and higher proportion of imports to the United States,” senior analyst Ruosha Li at the credit rating agency Moody’s was quoted by The Guardian, a British daily, as saying.

Should a 25 percent tariff be levied on car imports in the United States, German car exports to the United States can drop by as much as 7 percent and those of Italy to the United States can decline by 6.1 percent, warned a report published by an economic advisory firm Oxford Economics.

“This isn’t a headwind for German carmaking. It’s a full-on storm,” said Sander Tordoir, chief economist at the think-tank Centre for European Reform.

FINANCIAL MARKET TURMOIL

The impact of the U.S. tariffs was immediately felt in EU stock markets. On Feb. 3, the STOXX Europe 600, a broad measure of the European equity market, recorded its largest single-day decline of the year. Some auto and auto parts stocks even slumped by over 4.3 percent during the intra-day trading.

The announcement of a sweeping 25 percent tariff on steel and aluminum imports in the United States on Feb. 10 brought stocks in the steel industry down, with ArcelorMittal and Voestalpine declining by around 2 percent.

The uncertainty wasn’t limited to stocks. In the foreign exchange market, the introduction of new tariff policies has bolstered the U.S. dollar, denting the euro’s value and stability.

Goldman Sachs recently predicted that the euro-to-dollar exchange rate will drop below parity within the next year, possibly reaching 0.97 to 1.

Analysts have observed that although a weakened euro might temporarily boost exports, the high U.S. tariffs could reduce any trade benefits derived from the euro’s depreciation.

Moreover, Europe would face higher costs for importing energy and other dollar-denominated raw materials and semi-finished products. This could exacerbate inflationary pressures in the eurozone, while also complicating the ECB’s efforts to stimulate economic growth, particularly after multiple interest rate cuts aimed at fostering recovery.

If the EU decides to retaliate and impose tariffs on U.S. imports, prices in the EU will also be pushed higher, according to a report by the European Parliament.

Lorenzo Codogno, former chief economist at Italy’s Ministry of Economy and Finance, warned that the tariffs could disrupt inflation expectations and exchange rates, forcing the ECB to intervene.

A BLEAK OUTLOOK

“Greater friction in global trade could weigh on euro area growth by dampening exports and weakening the global economy,” warned the ECB recently in its Economic Bulletin.

Facing escalating tariff pressures, several European companies are considering increasing their investments in the United States, intensifying the trend of European industries relocating abroad.

French tire manufacturer Michelin plans to accelerate investments in its U.S. operations to mitigate potential tariff impacts, while luxury goods conglomerate LVMH is “seriously considering” expanding its production capacities, according to media reports.

In the automotive sector, analysts suggest that German automakers Porsche and Audi may need to establish manufacturing facilities in the United States to mitigate the impact of tariffs.

Stefan Bratzel, head of the Center of Automotive Management in Germany, noted that while building U.S. production sites would be costly and challenging, it could be the only long-term solution if automobile import taxes remain high.

Speaking at the Eurogroup press conference on Monday, Valdis Dombrovskis, the EU’s economy commissioner, warned that the U.S. tariffs would weigh on the economic growth of the bloc.

According to Dombrovskis, the EU stands ready to “respond in a firm and proportionate way” to the tariff measures, which it deeply regrets.

The uncertainties surrounding the trade policies between the United States and the EU are harming the global economy including the United States, Dombrovskis said.

“We expect the EU economy to grow at a slightly slower pace compared to what we had projected in the autumn forecast,” he said.

Economist Ruben Dewitte of ING Group warned that the tariffs could push the eurozone into recession. “Protectionism is a lose-lose game,” Dewitte said. “It stifles growth, discourages investment, and erodes trust. And with Trump’s second term, things could get even worse.” ■

Table of Contents

• 1. Given the uncertainty surrounding US trade policies, what specific measures is the EU taking to encourage European companies to continue investing within the EU, rather than relocating abroad?
• 2. Mounting Concerns: Trump’s Tariffs and the EU’s Response
• 3. Impact on EU Industries
• 4. Financial Markets Turmoil
• 5. EU’s Response and Retaliation
• 6. thoughts from the Ground

Mounting Concerns: Trump’s Tariffs and the EU’s Response

Archyde sat down with EU Trade Commissioner and High Representative Josep Borrell to discuss the escalating trade tensions between the United States and the European Union. With the full scale of new US tariffs targeting European imports still unclear, we explored the potential impacts and the EU’s strategies to mitigate the fallout.

Impact on EU Industries

Archyde: Commissioner Borrell, the U.S. administration’s decision to slap tariffs on European steel, aluminum, automobiles, semiconductors, and pharmaceuticals has sent shockwaves through European industries. Could you paint us a picture of the current landscape?

Josep Borrell: Indeed, these tariffs have hit us hard, particularly the steel industry. The European Steel Association estimates that we could lose up to 3.7 million tonnes of steel exports to the United States, leading to further capacity idling and closures. We’ve already witnessed meaningful job losses in the sector. The automotive industry, too, is in the crosshairs, facing potential declines in exports to the United States. This isn’t a minor disruption; it’s a full-blown storm for our industries.

Financial Markets Turmoil

Archyde: The financial markets have already felt the impact. The STOXX Europe 600 recorded its largest single-day decline in February, and currency markets saw a bolstered US dollar and a weakened euro. How concerned are you about the potential repercussions on EU financial stability?

Josep Borrell: We’re closely monitoring these developments.A weakened euro might temporarily boost exports, but high U.S.tariffs could reduce trade benefits and exacerbate inflationary pressures. We could face higher costs for importing energy and other raw materials, complicating the ECB’s efforts to stimulate growth. It’s a delicate situation that we’re handling prudently.

EU’s Response and Retaliation

Archyde: The EU has pledged to respond “firmly and proportionately” to these tariffs.Can you share some insight into how the EU plans to respond, and could retaliation be on the table?

Josep Borrell: We’re exploring all options to safeguard our interests. Retaliation isn’t off the table, but our response will be measured and in line with World Trade Organization rules. Our priority is to de-escalate tensions and avoid a full-blown trade war.We’re committed to working with our international partners to address these challenges multilaterally.

thoughts from the Ground

Considering the uncertainty surrounding the US’s trade policies,European companies are considering increasing their investments in the US to mitigate potential tariff impacts. Do you think EU industries will see a wave of companies relocating abroad?

Josep Borrell: We’re aware of this trend and we understand companies’ desire to minimize risks. However, we strongly encourage businesses to invest in the EU, creating jobs and boosting our economy. We’re working on improving our investment habitat and remaining competitive. We believe that the EU is still the best place for businesses to grow and succeed.