The following is a guest editorial courtesy of Carolane de Palmas, Markets Analyst at Retail FX and CFDs broker ActivTrades.

Less than a month after easing trade tensions with several Asian partners, U.S. President Donald Trump has pivoted to Europe. Over the weekend, he threatened to raise tariffs on most EU goods to 30%—up from the current 10%—starting August 1. In response, Brussels has so far kept its own retaliatory duties on hold, hoping last-minute negotiations can avert a new transatlantic trade war.

But the EU is also preparing for the worst. In case no agreement is reached by the deadline, the bloc is readying a sweeping set of countermeasures that would target around $84 billion worth of U.S. exports, including $77 billion in industrial imports—such as aircraft, machinery, chemicals, plastics, and medical devices—as well as $7 billion in agricultural and food products, from wine and beer to coffee and fresh produce. Additional measures under discussion could include levies on U.S. services, escalating the stakes further.

EU Trade Commissioner Maroš Šefčovič is expected to resume discussions with U.S. counterparts this week, but officials on both sides admit that the window for compromise is rapidly narrowing.

The coming weeks will show whether Washington and Brussels can avoid repeating the 2018–21 tariff cycle, which ended only after prolonged economic strain on both sides of the Atlantic. For the European Central Bank (ECB), the stakes are especially high: each additional percentage point of U.S. duty increases the risk that eurozone inflation will fall further below target, potentially forcing the central bank to lower interest rates more than currently anticipated.

Until the outcome becomes clear, traders should treat tariff developments as the dominant driver of European bond markets, FX pricing, and equity sentiment, particularly due to their expected impact on the ECB’s monetary policy trajectory.

What Is at Stake—and for Whom?

Trade between the two economies is vast. In 2024 the United States imported USD 606 billion worth of European goods and exported USD 370 billion in return. Pharmaceuticals were the single‑largest EU shipment to the U.S. (USD 127 billion), followed by passenger cars (USD 45 billion), specialised machinery and a range of consumer items from wine to perfume. On the other side of the ledger, Europe bought U.S. aircraft and parts (USD 32 billion), vehicles (USD 12 billion) and energy products, as well as a niche USD 5 billion market in blood plasma.

If the White House implements the 30 % tariff, the cost of moving everything from German SUVs and Italian leather goods to Spanish generics could rise sharply, while European counter‑measures—likely focused on aircraft, agriculture and certain consumer brands—would hit U.S. exporters in kind.

The breadth of U.S.–EU trade flows means any shift in tariff policy will be felt across multiple industries, from German automakers to French cosmetics producers and Irish pharmaceutical plants. But the impact won’t be evenly distributed—and this asymmetry carries important implications for eurozone policy and monetary decision-making.

Sector-Specific Vulnerabilities: Uneven Shock Across the Eurozone

If President Trump’s proposed 30% tariff on EU goods takes effect, it could trigger sector-specific disruptions that vary widely across the eurozone. Export-oriented economies like Germany, France, and Ireland are likely to feel the brunt of the pressure.

Germany’s automotive industry, a long-standing backbone of its export machine, shipped USD 45.2 billion worth of passenger cars to the U.S. in 2024, according to U.S. Census Bureau data. A sharp tariff hike would raise the final price of vehicles like BMWs and Mercedes-Benz models in the U.S., eroding their competitiveness. With nearly 800,000 Germans directly employed in auto manufacturing and millions more connected through suppliers and logistics, the risk to employment and industrial investment is significant.

France’s luxury goods sector also stands at risk. Companies such as LVMH and Hermès derive a meaningful share of their sales from the U.S. A 30% import duty could hurt pricing power and profitability across the fashion, fragrance, and leather segments—especially as American consumers turn to domestic or tariff-free alternatives.

Ireland, meanwhile, would face challenges through its pharmaceutical exports, which form a large portion of Europe’s USD 127 billion in U.S.-bound drug shipments. Many Irish-based facilities operated by multinationals could face headwinds from higher duties on generics and specialty medicines, creating a bottleneck in one of the eurozone’s most globally integrated sectors.

By contrast, southern European countries like Spain, Portugal, and Greece—whose economies rely more on domestic demand and services—may see only indirect effects. However, they could still feel the broader macroeconomic fallout via tighter eurozone-wide financial conditions, business sentiment deterioration, and volatility in bond markets.

This unequal exposure is especially relevant for the European Central Bank, whose single monetary policy must cater to a highly diverse economic landscape. When trade shocks hit some member states harder than others, fragmentation risks emerge—potentially complicating the ECB’s monetary trajectory aiming at finding a balance between growth, inflation, and financial stability.

Understanding these sectoral pressures provides important context for the ECB’s evolving policy stance. Already in June, central bank staff ran stress scenarios to evaluate how tariff escalation might shape growth and inflation across the bloc. What they found underscores just how important the trade outcome could be.

Why Does the ECB Care—and How Might it React?

The European Central Bank’s staff ran tariff stress tests in June. In a scenario where U.S. duties reach 20 % and the EU retaliates symmetrically, they projected euro‑area GDP growth of just 0.5 % in 2025 and 0.7 % in 2026, versus a baseline of 0.9 % and 1.1 % under the status‑quo 10 % tariff. Crucially, they estimated inflation would slip to 1.5 % in 2026 and 1.8 % in 2027, below the ECB’s 2 % target, because weaker demand would outweigh the direct price effects of higher import costs.

Those numbers matter because the Governing Council has already cut its deposit rate from 4 % to 2 % in eight steps since mid‑2024. In early June the Bank signalled a pause, but President Christine Lagarde also stressed that policy “remains data‑dependent.” If transatlantic tariffs do jump to 30 %—and stay there—models inside the ECB suggest another rate cut might be required as soon as the 12 September meeting.

With the next scheduled policy announcement set for 24 July, the central bank is unlikely to adjust rates before the tariff deadline. By September, however, officials will have clarity on three critical variables:

1. The tariff rate in force and the breadth of EU retaliation.
2. The initial impact on business sentiment—especially in export‑sensitive sectors such as autos, chemicals and capital goods.
3. Early inflation pass‑through, including energy prices and second‑round wage effects.

Should the harsher tariff regime materialise, investors can expect the European Central Bank’s updated staff projections to front‑load downside risks to growth and revise inflation trajectories lower, increasing the probability of a ninth cut. Conversely, a negotiated stand‑down would remove one of the principal drags on the euro‑zone outlook and allow the ECB to keep policy unchanged for longer.

Sources: Reuters, Wall Street Journal, NPR, ECB, CNN, Euronews

The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.

All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.

Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk. Forecasts are not guarantees. Rates may change. Political risk is unpredictable. Central bank actions may vary. Platforms’ tools do not guarantee success.