Trump Starts to Swing the Tariff 'Big Stick' and European Auto Stocks Are First

Smartec Finance app noticed European carmakers' shares fell on Tuesday as traders reacted to President-elect Trump's promise to impose high tariffs on Canada, Mexico and others, heightening fears of a potential global trade war.

The European auto and parts basket was the worst performing sector, down 1.7%, while the Stoxx 600 index fell 0.7%.

Trump said on social media he would impose a 25% tariff on all products from Mexico and Canada on his first day in office.

"Industries like autos, which are highly integrated along the US-Mexico and US-Canada borders, are very vulnerable," said Paul Donovan, chief economist at UBS Global Research.

Shares in Volkswagen fell 2.1%, while Stellantis dropped 4.1%, the most.

Intermonte, an Italian brokerage, said Stellantis would be "most affected" by US tariffs on Mexican imports, as the group imported 358,000 vehicles in 2023.

"We estimate that every 1 percentage point increase in tariffs could impact pre-tax profit by 160mn euros, equivalent to 1.4% of 2025 expectations," they said.

Stellantis generated about a quarter of its North American sales in Mexico.

German car parts maker Visteon fell 2.5%, while BMW, the German luxury brand, dropped 1.5%. Volvo Cars fell more than 3%, and Daimler Trucks 3.4%.

It was a quick reversal of sentiment. On Monday, markets welcomed the nomination of Scott Bessent, a fund manager, as Treasury secretary, a key cabinet post with influence over economic policy and international affairs.

Some investors said Bessent's nomination, given his financial career and knowledge of the markets, was a relief, while others said it could lower the chances of tough tariffs.