Europe’s financial optimism is dealing with a important take a look at as US President Donald Trump’s surprising menace to impose a 30% blanket tariff on EU exports from 1 August reignites fears of a transatlantic commerce warfare.
With markets closely positioned for a European progress renaissance fuelled by fiscal growth, any escalation may reverse months of investor confidence and spark sharp corrections in European property.
Whereas European officers hope to de-escalate tensions earlier than the deadline, the menace has already launched vital coverage uncertainty at a time when sentiment on European equities and the euro is using excessive.
Goldman Sachs: Tariffs may hit eurozone GDP by 1.2%
In accordance with Goldman Sachs, if the complete 30% tariff package deal is carried out and sustained, it will elevate the US efficient tariff price on EU items to 26 share factors, up from the present 8.5.
The funding financial institution warns that this might end in a cumulative 1.2% decline in eurozone GDP by the tip of 2026, with essentially the most acute influence more likely to materialise within the subsequent few quarters.
Even below Goldman’s baseline state of affairs, which assumes a negotiated consequence that retains sector-specific tariffs and provides new levies on important items comparable to prescription drugs and aviation parts, the eurozone would nonetheless face a 0.6% GDP hit.
“A lot of the present energy in manufacturing displays front-loading forward of tariffs,” mentioned Sven Jari Stehn, chief European economist at Goldman Sachs. “Mixed with the continuing appreciation of the euro, we see little progress within the second half,” Stehn added.
Stehn expects the EU to reply progressively to a 30% across-the-board tariff, doubtless starting on the day the brand new US duties take impact — probably growing the danger of additional commerce escalation.
EU holds fireplace, for now, however prepares countermeasures
Regardless of the financial dangers, Brussels is choosing restraint. An EU spokesperson confirmed on Tuesday that the bloc has no intention to implement countermeasures earlier than 1 August.
Nonetheless, preparations for retaliation are below means. The EU’s commerce consultant Maroš Šefčovič warned that 30% tariffs would make transatlantic gross sales “virtually inconceivable”, and confirmed that Brussels has drafted a brand new package deal of rebalancing measures value €72 billion in imports from the US, complementing the present rebalancing measures for metal and aluminium.
German Chancellor Friedrich Merz struck a cautious tone, saying: “The EU is refraining from countermeasures for now, however the US shouldn’t underestimate our willingness to reply.” “The aim is a fast resolution,” Merz added.
A bullish Europe commerce below menace
The newest Trump tariff menace lands at a pivotal second for market sentiment.
For the reason that begin of the yr, the euro has surged over 11% in opposition to the US greenback, marking its strongest first-half efficiency for the reason that foreign money’s inception. European equities, measured by the EURO STOXX 600, have gained 10%, outperforming the S&P 500 by 4 share factors.
Financial institution of America’s July European Fund Supervisor Survey confirmed traders overwhelmingly bullish on Europe.
A internet 44% count on stronger eurozone progress within the coming 12 months, up from 29% in June, pushed largely by Germany’s landmark €500bn infrastructure programme and broader fiscal easing.
Investor publicity to eurozone equities is at a four-year excessive, with a internet 41% of fund managers obese, up from simply 1% in January.
The euro itself has turn out to be closely overbought, with a internet 20% obese — the very best since January 2005 — after the quickest six-month positioning reversal on file.
Sector preferences within the Financial institution of America’s survey confirmed a robust tilt in direction of cyclicals, banks, and German equities, with autos and primary assets among the many most underweighted.
The sharp positioning shift displays a perception that European macro fundamentals can decouple from US coverage headwinds, with 63% of respondents viewing fiscal growth as highly effective sufficient to protect the bloc from Trump-induced turbulence.
However the danger now could be that these bullish expectations may unravel swiftly if the tariffs are carried out, triggering a pointy deterioration in sentiment, earnings outlooks, and progress momentum throughout the eurozone.