US tariffs could push Europe into long-term recession, expert warns

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The automotive sector could face losses of up to 5%, with luxury brands also at risk.

The threat of US tariffs on European goods comes at a time when the European economy is already struggling with slow growth. A 10% tariff could reduce profits for European exporters by 1% to 2%, while losses in the automotive sector could reach as high as 5%. If the tariffs remain in place long enough, Europe could be driven into a recession, warned Jakob Falkencrone, global investment strategist at Saxo Bank.

“A trade war would slow down economic growth in the eurozone, with Germany being hit hardest due to its heavy reliance on exports,” Falkencrone said. “The automotive, industrial, and luxury sectors would suffer the most, while domestic-focused companies might prove more resilient. If the tariffs persist, some European firms may be forced to cut investments, reduce hiring, or even lay off workers, which would put pressure on consumer spending.”

European automakers export billions of euros worth of vehicles to the US each year. With the new US administration proposing a 25% tariff, revenue in the sector could face a severe impact. Companies like BMW, Volkswagen, and Porsche, which are heavily reliant on the US market, are already seeing effects on their stock prices. French automaker Renault and Stellantis may also experience slower sales growth, Falkencrone added.

Europe is also home to some of the world’s most prestigious luxury brands, including LVMH, Hermès, and Burberry, which generate a significant portion of their revenue from American consumers. Higher prices due to tariffs could lead US customers to cut back on spending, impacting these companies’ growth.

In the industrial and manufacturing sectors, companies such as Siemens, Schneider Electric, and Airbus could face rising costs and contract delays. Falkencrone explained that supply chains are already weakened by previous disruptions, and new trade barriers would only exacerbate the situation.

The agricultural and food industries may also be affected. “The EU exports a substantial amount of food and beverages to the US, including French wine, Italian cheese, and Spanish olive oil. Tariffs could dampen demand for these products, negatively impacting businesses in the sector,” Falkencrone concluded.

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