In 2023, Europe exported $502 billion worth of goods to the US, with projections indicating this will grow to nearly $606 billion in 2024. However, if Donald Trump’s tariff threats are realized, European exports could face substantial challenges. The biggest risks will affect the healthcare, industrials, and consumer staples sectors, which are expected to contribute over half of the Stoxx Europe 600’s earnings growth this year.
Pharmaceuticals And Automakers Face Major Risks
Pharmaceutical companies are particularly exposed. For instance, Novo Nordisk generates 58% of its revenue from the US, while Sanofi generates almost 50%. The automotive and semiconductor industries will also be heavily impacted. Automakers, who account for 10% of European exports to the US, could suffer from the new 25% tariffs on imports from Mexico and Canada, scheduled to take effect on March 6. Companies like Stellantis, Volkswagen, BMW, and Mercedes-Benz could face a €6 billion ($6.3 billion) hit in operating profits. Volkswagen, for example, relies on Mexico for 65% of its US-bound cars, potentially forcing the company to either ramp up US production or exit the market entirely.
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Industrial Sector At A Disadvantage
The industrial sector is also at risk, especially for companies relying on global supply chains. Further tariffs on machinery and equipment could add to the challenges facing European exporters. A 10% to 20% tariff on pharmaceuticals, cars, machinery, and alcoholic beverages could reduce sales by 1.1% to 2.1% and operating profits by 3.3% to 6.6%, according to Bloomberg Intelligence.
Premium Carmakers Could Weather The Storm
Some premium carmakers, like BMW and Mercedes-Benz, may be better positioned to absorb the additional costs, as their customer base tends to accept price increases. However, many sectors will still face significant strain.
A History Of Negotiations With Trump’s Administration
Europe’s experience with Trump’s trade policies is not new. In 2018, the EU avoided new tariffs through negotiations that included commitments to import more US liquefied natural gas. This experience has helped large industrial companies localize their supply chains to better withstand future challenges. But, with the potential for tariffs in 2025, the outlook remains uncertain. According to Goldman Sachs, S&P 500 companies could see a 2% to 3% drop in earnings per share if tariffs are imposed. This would either reduce profit margins or lead to declining sales as companies pass on the costs to customers.
