European Automotive and Pharmaceutical Industries Highly Exposed to U.S. Tariffs

In this piece, we comment about the implications for European corporates of new tariffs imposed by any new U.S. administration. Throughout the election campaign, presidential candidates have floated the idea of applying a universal tariff of 10%-20% on imported goods. Europe and European corporates are highly exposed to U.S. tariffs because the EU is trade-intensive, and the U.S. is the largest destination for European exports.

Key Takeaways:
-- The most exposed European sectors are pharma, auto, and chemical products, which represent the lion's share of European exports to the U.S.
-- The direct effect of a U.S. tariff would be a reduction in EU export volumes. It is unlikely that demand from other markets or domestic demand could make up for the adverse effect.
-- In the medium-term, European companies could move a higher proportion of production to the U.S. This transition would likely be costly and take years to become operational.

"European corporates are highly exposed to new tariffs from the U.S.", says Edoardo Danieli, Vice President of Morningstar DBRS. "In the short-term, this could affect their profit, while in the medium-term, this could translate into moving investments to the U.S."