What Europe stands to lose from Trump’s latest tariffs

The EU is projected to experience a deceleration in exports to the US due to new tariffs, despite initial front-loading, leading to an estimated direct GDP impact of -0.3% in the short term with significant longer-term growth risks. This assessment considers the existing EU-US framework agreement, an appreciating euro, and emerging trade data.

Analysis

The European Union's economic outlook is facing headwinds from the implementation of new US tariffs, with a projected direct negative impact on GDP of 0.3% in the short run. While export levels were sustained in the first half of 2025 due to front-loading activities by companies anticipating the tariffs, a deceleration in EU exports to the US is now expected as the tariffs begin to take effect. This macroeconomic pressure is compounded by the appreciation of the euro against the US dollar, which further challenges the price competitiveness of European goods. The assessment, which follows an EU-US framework agreement, indicates that beyond the immediate GDP impact, there are significant risks to the bloc's long-term growth trajectory stemming from this altered trade relationship.

Key Decisions for Investors

• Investors should consider reducing exposure to European companies with significant revenue dependency on the US market, particularly within export-oriented sectors, given the forecasted deceleration in trade.
• The appreciating euro against the dollar poses a dual risk; it acts as a headwind for European exporters and creates currency translation risk for US-domiciled investors, warranting a review of currency hedging strategies.
• Monitor upcoming European trade and manufacturing data closely for the first signs of the predicted export slowdown, as this will be a key catalyst for repricing assets sensitive to transatlantic commerce.
• Re-evaluate long-term growth assumptions for European equities, as the analysis points to 'significant risks to growth in the longer run', suggesting a potentially prolonged period of trade friction beyond the initial 0.3% GDP impact.