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Theo Jorden
By Staff Reporter | May 4, 2026 European equity markets opened broadly in positive territory on Monday, shrugging off the weekend’s geopolitical noise but the automotive sector told a different story, tumbling sharply after President Donald Trump announced he would raise tariffs on European cars and trucks to 25%, escalating a trade dispute that analysts
By Staff Reporter | May 4, 2026
European equity markets opened broadly in positive territory on Monday, shrugging off the weekend’s geopolitical noise but the automotive sector told a different story, tumbling sharply after President Donald Trump announced he would raise tariffs on European cars and trucks to 25%, escalating a trade dispute that analysts warn could deliver a substantial blow to one of the continent’s most important industries.
The pan-European Stoxx 600 edged 0.1% higher shortly after 8:00 a.m. London time, with most regional indices trading in the green. Germany’s DAX gained 0.1%, while Italy’s FTSE MIB led the field with a 0.4% advance. France’s CAC 40 dipped marginally, down less than 0.1%. The UK’s FTSE 100 was absent from the action entirely, with London markets closed for the early spring bank holiday.
Telecoms emerged as the standout sector, surging 1.2% across the region. Finland’s Nokia was the most dramatic mover, jumping 7% in early trade extending a remarkable run that has seen the company’s shares more than double since the start of the year.
The automotive sector, however, was a sharply different picture. European carmakers fell 1.6% as a group in early dealing, dragged down by Trump’s Friday announcement. Auto parts giant Continental led the declines, shedding 5.2% to sit at the bottom of the Stoxx 600. Mercedes-Benz dropped 1.9%, Volkswagen traded 1.7% lower, and Stellantis — already under pressure after disappointing quarterly earnings — fell as much as 3.6%.
On Friday, May 1, Trump announced via social media that he would raise tariffs on cars and trucks imported from the European Union to 25%, up from the 15% rate established under last July’s Turnberry Deal — the framework agreement Trump had struck with European Commission President Ursula von der Leyen.
His justification: the EU was “not complying with our fully agreed to Trade Deal.” Trump said the new tariff rate would take effect “next week,” though he did not specify which legal authority he would invoke to implement the change — a detail that matters significantly given recent legal challenges to his tariff powers.
The announcement directly targeted Germany’s automakers, which export a large share of the vehicles they sell in the United States from plants based in Europe. BMW, Mercedes-Benz, and Volkswagen are the most exposed to any tariff increase, with Bernstein analysts estimating that the jump from 15% to 25% would create meaningful earnings headwinds across the sector, with the pain most acute at Stellantis and Porsche.
The Turnberry Deal, agreed last July, had been intended to defuse a months-long transatlantic trade war by locking in a 15% tariff rate on most EU goods entering the United States. It was widely seen at the time as a hard-won stabilisation of the relationship between Washington and Brussels.
However, that framework unravelled in February when the U.S. Supreme Court ruled 6-3 that Trump had exceeded his authority under the International Emergency Economic Powers Act in imposing the original round of tariffs. That ruling left the legal scaffolding of the deal uncertain and Trump’s latest announcement has further deepened that uncertainty by threatening to push rates even higher while the legal basis remains contested.
The European Commission defended its record, with a spokesperson saying the bloc had been implementing its commitments “in line with standard legislative practice” and keeping Washington “fully informed throughout.” The Commission said it remained “fully committed to a predictable, mutually beneficial transatlantic relationship” while keeping its “options open to protect EU interests.”
The measured tone did not satisfy everyone in Brussels. Bernd Lange, the lead Member of the European Parliament negotiating the deal’s implementation, was more pointed, accusing the United States of “repeatedly breaking its commitments” and describing Trump’s latest move as evidence of “clear unreliability.”
Trump’s tariff escalation lands against an already strained global economic backdrop. The ongoing Iran-U.S. conflict has driven energy prices sharply higher, contributing to slower growth and rising inflation across major economies. Analysts have repeatedly warned that additional trade friction between the world’s two largest trading blocs risks compounding those headwinds at the worst possible moment.
For now, equity markets appear to be betting that the tariff threat is a negotiating tactic rather than a settled policy — a read that would explain why broader indices held up even as the auto sector sold off hard. Whether that optimism is warranted depends almost entirely on whether Brussels and Washington can return to the table before the new rate takes effect.
Markets will be closely monitoring any response from the European Commission in the coming days, as well as the specific legal mechanism Trump uses to implement the tariff increase. Any signals of renewed diplomatic engagement between von der Leyen and the White House are likely to provide near-term relief for battered auto stocks. Conversely, a confirmed implementation date with no talks in sight would almost certainly deepen the sell-off.
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