The United States is set to impose sweeping tariffs on European Union (EU) goods, a move that could slash EU exports by at least €85 billion. The hardest-hit industries are expected to be automotive and pharmaceuticals, with Germany, Denmark, and Central Europe facing severe economic fallout. The European Central Bank (ECB) may be forced to consider rate cuts in response.
The tariffs, reportedly as high as 20% on all imports from the EU, were unveiled on April 2—a date dubbed “Liberation Day” by the Trump administration. If implemented, they would significantly escalate transatlantic trade tensions and add pressure to Europe’s already sluggish industrial growth.
Germany and Central Europe at Risk
The automotive sector stands to suffer the most, particularly Germany, Slovakia, and Hungary, where car exports form a vital part of the economy. In 2024, EU vehicle exports to the U.S. were valued at €46.3 billion. With Trump’s new tariffs adding 20% on top of a pre-existing 25% duty, total levies could reach 45%, making European cars uncompetitive in the American market.
Daniel Parker, an economist at Capital Economics, warned that the German automotive sector could see major disruptions. “Stuttgart, Upper Bavaria, and the Braunschweig region—which includes Wolfsburg—are likely to suffer the most,” he said. These regions house major production hubs for Mercedes-Benz, BMW, and Volkswagen, which rely on American sales.
The impact would also extend to Slovakia, where Kia and Volkswagen plants in Nitra and Zilina are highly exposed. Hungary’s Gyor and Austria’s Linz and Graz, home to key automotive supply chains, could also experience a downturn. Any disruption to German exports would ripple across Central Europe’s specialized auto parts industry.
Pharmaceutical Industry in the Crosshairs
Pharmaceuticals, the EU’s most lucrative export sector to the U.S., are also under threat. The industry recorded a record trade surplus in 2023, with American sales accounting for nearly 15% of total EU gross output.
Denmark and Ireland are particularly vulnerable. Danish pharmaceutical giant Novo Nordisk, which saw soaring demand for its weight-loss drugs like Ozempic, relies heavily on U.S. sales, which generated two-thirds of its revenue in 2023. Reports suggest the Trump administration may target semaglutide—the active ingredient in these drugs—as part of a broader geopolitical strategy.
“One strategy could involve imposing a specific levy on semaglutide, which would disrupt Danish exports while benefiting U.S. competitors,” Parker explained.
Economic Slowdown and ECB Response
Goldman Sachs economists predict that the new tariffs could raise the average duty on EU goods from 7% to 20%, and possibly as high as 43% under more extreme scenarios. This would lower eurozone GDP by 0.7% by 2026, with most of the impact felt in late 2025.
In a worst-case scenario, the eurozone could enter a recession next year, with a 1.2% GDP contraction. Inflation, already a concern for policymakers, could rise to 2.3% if the EU retaliates with counter-tariffs.
The ECB now faces a difficult choice—higher inflation due to trade disruptions, but slowing economic growth. Goldman Sachs expects the central bank to cut interest rates in April and June, with another 25-basis point cut in July, bringing the deposit rate to 1.75%.
As the EU prepares for the fallout, the coming months will be critical in determining whether trade tensions escalate further or if negotiations offer a path to avoid severe economic damage.
