Uncertainty surrounding US trade tariffs is set to cost the eurozone and UK economies billions over the next two years, according to a recent report by S&P Global. The potential economic fallout cannot be fully offset by increased defence spending, despite upcoming fiscal stimulus measures in Europe.

Eurozone Growth Downgraded Amid Trade Concerns

S&P Global’s latest economic forecast projects that the eurozone economy, valued at €14.6 trillion, will contract by 0.4% of GDP cumulatively in 2025 and 2026 due to trade-related uncertainty. Prior to the recent announcement of 25% tariffs on US car imports, the organization had already downgraded its eurozone growth expectations for 2025 from 1.2% to 0.9%.

Sylvain Broyer, Chief Economist for Europe, the Middle East, and Africa (EMEA) at S&P Global, emphasized that “uncertainty itself is likely to pose a greater risk to the European economy than the tariffs alone.”

While US tariffs could weaken economic recovery, there are some positive indicators. Fiscal stimulus measures in Germany and the broader EU could help drive eurozone GDP growth to 1.4% in 2026. Additionally, confidence in the region is improving due to falling inflation and interest rates, which are strengthening the labour market.

Potential Economic Impact of Tariffs

S&P Global considered multiple scenarios regarding the impact of US tariffs on the eurozone economy. In the worst-case scenario, where all EU exports to the US face a 25% tariff, eurozone GDP growth could be limited to 0.5% in 2025 and 1.2% in 2026.

Germany, heavily reliant on US car exports, would be particularly affected. Broyer noted that Germany’s exposure to US car markets is 1.5 times the European average, and tariffs could lower its economic output by 0.1% in 2025.

Despite these challenges, EU defence spending could provide some economic support. European governments are expected to increase defence budgets by 1% of GDP from 2026 onward, potentially boosting eurozone GDP by 0.1% in 2026, 0.2% in 2027, and 0.3% in 2028.

European Central Bank’s Expected Response

S&P Global anticipates that the European Central Bank (ECB) will cut interest rates once more in 2025, reducing the rate to 2.25% by mid-year. However, it expects the ECB to start raising rates again in the second half of 2026, with two hikes bringing the deposit facility rate to 2.75% by year-end.

Broyer warned that additional risks to the forecast include continued trade uncertainty, potential failures in executing fiscal plans, and economic slowdowns in the US due to rising import costs. However, stronger-than-expected fiscal stimulus could improve confidence and support growth.

UK Growth Forecast Cut Nearly in Half

The UK is also facing economic headwinds. Before the car tariff announcement, S&P Global had already lowered its UK growth forecast for 2025 from 1.5% to 0.8%, citing persistent inflation, weak export volumes, and restrictive monetary policy.

Marion Amiot, Chief UK Economist at S&P Global Ratings, highlighted that if the UK cannot avoid the newly imposed 25% tariffs on car exports to the US, it could face an additional 0.2% hit to GDP. “Car exports to the US are the largest source of bilateral goods trade surplus for the UK,” Amiot noted.

The UK’s export sector is struggling due to weak demand in Europe and China, as well as the strong value of the British pound. High energy and labour costs are also limiting competitiveness. “Energy prices are still twice as high today as they were before the energy crisis, so businesses have a lot to absorb,” Amiot explained.

The Bank of England’s Dilemma

The Bank of England (BoE) faces a challenging economic landscape. While businesses and investors are eager for interest rate cuts, inflation remains a key concern. In its latest meeting, the BoE kept its benchmark interest rate at 4.5%, despite inflation dropping to 2.8% in February.

S&P Global predicts that the BoE will lower rates to 4% by the third quarter of 2025, although it now expects one fewer rate cut than previously forecast. Inflationary pressures are likely to remain a constraint on monetary policy decisions.

Looking ahead, UK economic growth is expected to accelerate in 2026, with S&P Global projecting a 1.6% GDP increase. “Things are looking up for 2026, with regional growth picking up, interest rates cut by another 50 basis points, and inflation edging back to 2.5%,” the report concluded.

As trade tensions and policy uncertainty continue to shape economic conditions, both the eurozone and the UK must navigate a complex environment, balancing fiscal stimulus with monetary policy adjustments to maintain stability and growth.

More than 2,000 jobs are at risk as British Steel, the UK’s second-largest steelmaker, announced plans to shut down its blast furnaces and steelmaking operations in Scunthorpe. The decision follows failed negotiations between the company’s Chinese owner, Jingye, and the UK government over a financial support package.

Unions Call for Government Intervention

Unions have urged the government to step in and secure the future of British Steel, which has been incurring daily losses of around £700,000 (€840,000). Since acquiring the company in 2020, Jingye has invested over £1.2 billion to sustain operations but cited “highly challenging market conditions, tariffs, and rising environmental costs” as key reasons for the decision to shut down primary steel production.

British Steel is currently consulting with unions on the closures and potential reductions in rolling mill capacity, which could take effect as early as June. Between 2,000 and 2,700 jobs are at stake.

Failed Rescue Talks and Calls for a Green Transition

The company had sought government support for a significant investment in two new electric arc furnaces, which would reduce carbon emissions compared to traditional blast furnaces. However, after months of negotiations, no agreement was reached.

Unions had proposed a transition plan to decarbonize steelmaking, advocating for continued operation of the existing blast furnaces while the new electric furnaces were being built. This strategy would require an additional £200 million in government support to offset carbon costs during the transition period.

“This is a dark day for our steel industry and our country,” said Roy Rickhuss, General Secretary of the Community union. “The closures at Scunthorpe would be a hammer blow to communities built on steel, where thousands of jobs—both directly and in the supply chain—depend on this industry.”

Rickhuss urged both the government and Jingye to resume negotiations, emphasizing that the company has not ruled out keeping the blast furnaces operational during a transition if government support is secured.

Government Response

Business and Trade Secretary Jonathan Reynolds stated that the government remains committed to finding a solution. “We’ve been clear there’s a bright future for steelmaking in the UK, and we will continue working tirelessly to reach an agreement,” he said.

Decline of the UK Steel Industry

Once a global leader, British steel production employed over 300,000 people in the postwar era. However, competition from cheaper steel imports, particularly from China, has significantly reduced its footprint. Today, the industry employs around 40,000 people, contributing just 0.1% to the UK economy.

With uncertainty looming over the future of British Steel, industry leaders and unions continue to push for a government-backed strategy to secure jobs and ensure the long-term sustainability of steel production in the UK.

Global markets were rattled after US President Donald Trump announced a 25% tariff on all imported automobiles, set to take effect next week, with auto parts tariffs following on May 3, 2025. The move has drawn widespread condemnation from European industry leaders, who warn of supply chain disruptions, increased costs, and potential job losses.

White House Justifies Tariffs on National Security Grounds

The White House defended the tariffs, citing national security concerns. In an official statement, the administration claimed that foreign automobile imports threaten the US industrial base and necessitate protective measures.

“I find that imports of automobiles and certain automobile parts continue to threaten to impair the national security of the United States and deem it necessary and appropriate to impose tariffs,” the statement read.

Europe Reacts Strongly

European leaders and industry groups swiftly condemned the tariffs. German Economy Minister Robert Habeck called for a decisive European response, stating, “The EU must now give a firm response to the tariffs—it must be clear that we will not back down in the face of the USA.”

The German Association of the Automotive Industry (VDA) also criticized the decision, warning that it could disrupt supply chains and harm economic growth. Hildegard Müller, VDA President, called the tariffs “a disastrous signal for free, rules-based trade” and urged urgent US-EU negotiations to prevent further escalation.

Impact on German-U.S. Trade Relations

Germany’s automotive industry maintains strong ties with the US, employing around 138,000 American workers, including 48,000 in manufacturing and 90,000 in parts supply. Nearly half of the more than 900,000 vehicles produced by German automakers in the US are exported globally.

A VDA survey found that 86% of medium-sized automotive firms expect to be affected by the tariffs—32% directly and 54% indirectly through supply chains. The European Automobile Manufacturers’ Association (ACEA) added that the tariffs come at a critical time for an industry transitioning toward electrification and sustainability.

“European automakers have been investing in the US for decades, creating jobs and fostering economic growth,” said Sigrid de Vries, Director General of ACEA. She urged immediate dialogue between the US and EU to avoid a full-scale trade war.

Analysts Warn of Price Hikes and Earnings Pressure

Financial analysts cautioned that the tariffs could significantly raise vehicle prices for US consumers. Goldman Sachs analyst Mark Delaney estimated that imported car prices could increase by $5,000 to $15,000 (€4,600–€13,800), while US-assembled models may see cost hikes of $3,000 to $8,000 (€2,800–€7,400) due to reliance on imported parts.

Delaney noted that Tesla and Rivian, which manufacture entirely in the US, would be less affected. Ford and General Motors, which produce 80% and 60–70% of their US sales volume domestically, respectively, could still face challenges due to global supply chain complexities. European automakers like Volvo Cars and Porsche are expected to be the hardest hit.

Stock Markets React

The announcement triggered a sharp sell-off in auto stocks. Porsche AG saw its shares drop 5.4%, while Mercedes-Benz AG fell 4.8%, Ferrari declined 4.7%, BMW AG slipped 3.7%, and Volkswagen AG lost 2.9%.

US automakers were also impacted, with General Motors falling 7%, Ford declining 3.7%, and Tesla slipping 1.7% in premarket trading. Analysts predict continued volatility as the industry assesses the full impact of the tariffs.

With tensions escalating, industry leaders on both sides of the Atlantic are urging swift negotiations to prevent further economic fallout.