Trump's tariffs hit European auto sector: Stocks of major companies fall

The Stoxx Europe 600 index fell by 0.6%, and the German DAX index, where some of the region's largest automakers are based, dropped by 0.8%.

The auto sector declined by 1.6%, with Mercedes-Benz Group shares falling by 2.7%, Volkswagen shares down 1.6%, and Stellantis NV dropping 3.2%. Auto parts manufacturer Valeo decreased by 4.7%.

Investors are anticipating further tariffs from Trump, who promised so-called reciprocal levies on April 2, which could deepen tensions with key trading partners. The US President also promised tougher penalties for the EU and Canada if they join forces against the US.

"With the announcement on automobile imports, the markets must realize that the announcements on April 2 will be significant with regard to reciprocal tariffs," said Alexandre Hezez, Chief investment officer at Group Richelieu in Paris. "We remain cautious in the short term on equity markets, which have not yet absorbed this shift."

European stocks this year still outperform the S&P 500 index, rising 7.5% since the start of the year due to Germany's spending plans.

However, strategists are divided on whether Europe's lead will continue throughout the year, given the uncertainty surrounding the trade war, the US inflation trajectory, and the course of Russia's war in Ukraine.

"Looking at it in terms of game theory, one can't exclude that tit-for-tat reprisals from Canada and the European Union could lead to something irrational, to another shock and with it, further volatility," Beatrice Guedj, Head of research at Swiss Life Asset Managers in Paris.

Earlier, the European Commission President Ursula von der Leyen promised corresponding measures from the EU after US President Donald Trump announced a 25% tariff on all car imports.