European shares dropped sharply on Thursday after US President Donald Trump’s plan to impose a 25% tariff on cars and other goods from the European Union fueled fears of an escalating trade war.
The pan-European STOXX 600 index retreated by 0.7% as of 0813 GMT, following a record high in the previous session.
Shares of major European automakers took a hit, with the automaker index falling over 3%. Stellantis, Volkswagen, and Porsche all saw declines of around 2%. Ferrari experienced a sharp drop of more than 6%, following the news that Exor, the holding company of the Agnelli family, sold a 4% stake in the luxury carmaker for €3 billion ($3.14 billion).
Rolls-Royce, on the other hand, saw a significant gain of 16%, driven by the British engine manufacturer’s strong performance, surpassing 2024 profit growth expectations.
The company benefitted from increased widebody jet production and cost-saving measures.
In earnings news, WPP, the British advertising giant, tumbled 16% after reporting a larger-than-expected 1% decline in full-year organic revenue. Howden Joinery also saw a drop of 6.6%, pulling down the retail sector by 1.7%, as it missed annual revenue expectations.
The uncertainty surrounding Trump’s tariff plan has raised concerns about its impact on global trade. The proposed tariffs, aimed at European carmakers, were announced as part of a broader effort by the US government to reduce the trade deficit and challenge what it perceives as unfair trade practices.
The EU has vowed to respond "firmly and immediately" to any new tariffs, further exacerbating fears of an all-out trade war between the two economic giants.
This follows a pattern of tariff-related tensions under Trump’s administration, which has previously imposed tariffs on steel, aluminum, and various Chinese goods, sparking retaliatory measures and trade disputes globally.
Trump's tariffs have consistently been a point of contention, with critics arguing they could lead to higher prices for consumers and disrupt international supply chains. Proponents, however, argue that they are necessary to protect US industries and reduce trade imbalances.
As the situation develops, market participants will be watching closely for any signals of an agreement or further escalation.
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