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European stocks slipped on Monday in response to US President Donald Trump’s threat of 30 per cent tariffs on the EU, the latest escalation of his trade war, although they recovered much of their losses by the close of trading.
Germany’s Dax index fell as much as 1.2 per cent on Monday, before recovering to close 0.4 per cent lower. France’s Cac 40 fell 0.2 per cent.
The broad Stoxx Europe 600, which includes non-EU markets such as the UK, also came back from early losses to close 0.1 per cent lower on Monday.
The moves came after Trump announced the planned levies on Saturday, pushing the bloc to delay its planned retaliatory tariffs on the US in the hope of coming to an agreement with Washington before the August 1 deadline.
Trump’s announcement marked the latest in a series of trade threats from the US administration over the past week.
The new 30 per cent tariff proposal is significantly higher than the 20 per cent level announced on “liberation day” in April. But market reaction has been limited, with some investors saying they expect him to step back from his steepest threats before August 1.
“After a period of relief that tariffs would be manageable amidst a lot of empty threats, some concerns are building that the market performance itself may encourage Trump to push further,” said Guy Miller, chief market strategist at Zurich.
“I think that is legitimate, with a high risk of disruption over the summer, albeit more modest and contained than April.”
A Stoxx 600 sub-index tracking carmakers and other auto companies fell 1.4 per cent. Mercedes-Benz and BMW dropped 2.2 per cent and 2.5 per cent respectively.
Luxury companies that sell into the US also suffered. Hermes shares dropped 1.1 per cent and Kering fell 1.2 per cent. Pandora dropped 2.7 per cent.
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The euro was unchanged against the dollar.
US equity markets were calm on Monday. By early afternoon in New York, Wall Street’s blue-chip S&P 500 was flat and the tech-heavy Nasdaq 100 index was up 0.2 per cent.
Peter Schaffrik, chief European macro strategist at RBC Capital Markets, said that the relatively muted market reaction was partly a bet that the 30 per cent threat is a negotiation tactic by Trump.
However, he added: “Personally I’m a little bit more worried. We’ve been here before. If there’s no negotiated settlement, I can’t see how the EU just takes it lying down — so they probably will retaliate.”
Analysts say a much larger sell-off is likely if the 30 per cent tariffs — which Trump also threatened against Mexico on Saturday — do come into force.
Barclays wrote that “if the US were indeed to increase tariffs on EU goods to 30 per cent, the risk of retaliation and a deeper recession would likely send equities down double digits”.
The Barclays note added that “we are sceptical tariffs will settle at the high levels threatened by Trump”. Goldman Sachs analysts also said that “scepticism over the odds and durability of potential implementation” is “well-founded”.