Europe markets, chemicals trading chills as tariff fears grow

LONDON (ICIS)–Europe markets tumbled in afternoon trading on Wednesday, reversing earlier gains as the euro fell in value against the US dollar amid fears over the introduction of fresh tariff measures by the incoming US administration.

A robust start to the day by Europe stock exchanges reversed course as trading continued.

A speedy resolution to a US political fight that had been expected to be closer-fought and potentially take longer to be decided reassured investors, but a surging dollar and jitters over the potential for fresh duties on exports to Europe unsettled traders.

Robust trading goosed stock valuations across Europe shortly after press called the election for Donald Trump, with bourses in Germany, France and the UK up 0.85%-1.15%

That rally subsided over the course of the day as a surging dollar and tariff worries unsettled markets, with the value of the euro dropping 2 cents against the dollar, from $1.09:€1 on Tuesday evening to $1.07:€1 in afternoon trading on Wednesday.

Germany’s DAX index was trading down 1.18% while France’s CAC 40 had shed 0.83% of its value and the UK FTSE 100 slumped 0.23% as of 16:13 GMT.

Particularly hard-hit were German automaker stocks, with Volkswagen shares plunging 5.70%, Porsche down 4.54%, BMW plummeting 6.47% and Mercedes-Benz shares dropping 6.44% on fears of steeper tariffs on vehicle exports to the US.

The new president-elect had spoken on the campaign trail of plans for additional import tariffs, particularly for China but also for Europe.

Donald Trump has set out plans to impose tariffs of up to 20% on all external trading partners and 60% on products from China, which economics institute Ifo estimated could cost Germany-based businesses €33 billion per year if they are introduced.

Germany-based chemicals trade body VCI on Wednesday stated that businesses in both Germany and the EU need to diversify trade flows along with improving international competitiveness, due to the prominence of the US as a destination.

The US is Germany’s second-largest trading partner after the EU.

“For firms, uncertainty over the US tariff regimes for their industry and the risk of retaliatory measures by policymakers elsewhere will clearly be a huge problem when forward planning,” said Oxford Economics director of global macro research Ben May.

“This, combined with potentially higher borrowing costs, could be a strong disincentive to delay or cancel investment,” he added.

US markets are substantially more bullish at present, with the Dow and Nasdaq trading up 3.15% and 2.02% as of 16:34.

Canada exchanges booked more modest increases, while central and southern American exchanges fared worse, with the Brazil Stock Exchange Index and Mexico’s S&P/BMV IPC index trading down.

(Clarification: recasts eighth paragraph)