Global stocks have been whipsawed in recent sessions as investors grapple with conflicting signals from senior officials in the Trump administration on future trade policy between the world’s two biggest economies.
Many investors have already started selling Europe, concerned that trade frictions could dent a fragile economic recovery in a region heavily exposed to international trade. In recent weeks, investors have withdrawn billions of dollars from European equity and bond funds. Export-intensive sectors have taken a drubbing, with the region’s auto stocks down 11% over the past month—now standing within 1% of a bear market—while the wider Stoxx Europe 600 index has fallen 3.3%.
Europe is exposed to a series of direct and indirect trade costs, investors say. The U.S. has already placed tariffs on European steel and aluminum and investors worry the same could happen to cars, a key driver of Germany’s export engine.
Even if Europe can avoid direct tariffs, the global supply chains that its companies rely upon for components could be hit as the U.S. and China target each other’s products.
“Europe is very sensitive to trade and to the global economy,” said Thomas Costerg, economist at Pictet Wealth Management.“ Europe is always caught in the crossfire,” and always suffers more when there is a hit to global growth, he said.
Simon Derrick, chief currency strategist at BNY Mellon, points to Germany’s increasingly delicate coalition government, potential clashes between Brussels and Italy’s new antiestablishment government and ongoing debates around Brexit.
“All this points to a far more fragile Europe,” he said.
