European Shares Drop Amid Trade Tensions with the US

European Shares Drop Amid Trade Tensions with the US

European shares have taken a hit this week as concerns over the potential impact of a "Trumpcession" continue to mount. The term "Trumpcession" was coined by economists to describe the economic turbulence triggered by the "erratic" trade and economic policies of US President Donald Trump.

The escalating trade tensions between the US and the European Union (EU) have sparked fears that the EU may not escape unscathed if a "Trumpcession" comes to pass. Earlier this week, the EU announced retaliatory tariffs on 26 billion euros worth of US imports, including boats, bourbon, and motorbikes, in response to Trump's 25% tariffs on steel and aluminum.

Trump quickly responded by threatening to slap a 200% tariff on EU wine and other alcohol products. This escalating trade war is causing significant uncertainty, which is harming corporate investments and the broader economy. Economists warn that this could put jobs at risk on both sides of the Atlantic.

While the US tariffs only impact 5% of EU exports, they will hit the steel and automotive industries particularly hard, which are already grappling with high costs and weak demand. The German Steel Association estimates that up to 20% of the EU's steel exports go to the United States, the second-biggest export market for EU steel producers.

The 25% tariffs on autos are also a major concern for the EU. A study by Oxford Economics estimates that exports from German and Italian automakers to the United States could drop by 7.1% and 6.6% respectively due to the auto tariff. This highlights the vulnerability of the EU automotive industry to US tariff threats.

The uncertainty caused by the trade war is already having a significant impact on the economy. People and businesses are delaying consumption and investments, which is lowering overall demand and slowing economic growth.

Some experts warn that Trump's tariffs could trigger a Europe-wide recession and another debt crisis in the eurozone. They point to the prolonged downturn in the German economy and the severe sovereign debt issues faced by Italy and France. These countries are struggling to reduce their debt burden by boosting exports to Germany, but the weak German economy and declining import demand are making this difficult.

The European Central Bank has acknowledged the challenges posed by the trade war and the global volatility. President Christine Lagarde has stated that it is "impossible" to guarantee that policymakers will meet the 2% inflation target in the short term. She also emphasized that tariffs are detrimental to the economy.

The escalating trade war between the US and the EU is causing significant uncertainty and harm to the global economy. It is crucial for both sides to find a way to resolve their differences and avoid further escalation.