What Europe stands to lose from Trump’s latest tariffs – revisited

ING analysts project a direct -0.3% short-run hit to EU GDP from evolving US tariffs, despite initial export front-loading and a framework agreement. The estimated trade-weighted effective tariff rate for the EU has surged to 19.6% from 1.2% in 2024, with this impact remaining consistent with prior forecasts due to the euro's 15% appreciation offsetting a smaller-than-expected tariff increase. While exports saw early 2025 growth, a significant deceleration is anticipated, with EU exports to the US projected to decline by nearly 17% over two years, and indirect effects potentially amplifying the long-term GDP impact to -0.86% as tariffs become a persistent US policy tool.

Analysis

The European Union faces a direct -0.3% short-term GDP impact from new US tariffs, a projection that remains consistent with previous forecasts despite shifting underlying factors. The analysis indicates that a smaller-than-anticipated tariff hike has been offset by a 15% appreciation of the euro, which amplifies the negative pressure on EU exporters. The trade-weighted effective tariff rate for the EU has surged to 19.6% from just 1.2% in 2024, an 18.4 percentage point increase that is expected to be almost fully passed through to prices. While export data showed a 13.8% year-on-year increase through July 2025 due to front-loading, a significant deceleration is anticipated, with projections for a nearly 17% decline in EU exports to the US over the next two years. The report highlights that indirect effects, such as supply chain disruptions and reduced investment, could amplify the economic damage, with other models suggesting a GDP impact of -0.5% to -0.7%, and the long-term direct impact could reach -0.86%. The tariff landscape remains volatile and varies by member state, with Slovenia facing an estimated 45% tariff hike versus Ireland's 10.5%, underscoring the complexity for investors.

Key Decisions for Investors

• Investors should review and potentially reduce exposure to European companies with high revenue concentration from the US, particularly in sectors targeted by punitive tariffs such as steel, aluminum, and pharmaceuticals.
• The euro's 15% appreciation acts as a significant compounding headwind for EU exporter profitability, making currency hedging strategies for European equity holdings a prudent consideration.
• Given the forecast for a sharp deceleration in EU exports in the second half of 2025, investors should monitor upcoming trade data closely as a confirmation signal for the negative macro outlook and consider underweighting the most exposed European assets.
• For a longer-term perspective, capital could be allocated towards European firms poised to benefit from the EU's strategic pivot to new trade agreements with partners like Mercosur, Indonesia, and India, which could offset US-centric risks.