Investing.com - European stock markets fell sharply Tuesday, following on from an overnight slump on Wall Street, after U.S. President Donald Trump confirmed that trade tariffs on Mexico and Canada were set to take effect later in the day, raising fears of a global trade war.
At 05:55 ET (10:55 GMT), the DAX index in Germany dropped 2%, the CAC 40 in France slipped 1.2% and the FTSE 100 in the UK fell 0.3%.
Trump confirms import tariffs
President Trump confirmed late Monday that 25% import tariffs on Mexico and Canada are set to go ahead later in the session as both nations have now run out of room to negotiate a deal.
Trump also signed an order to implement an additional 10% surcharge on imports from China, also set to come into effect on Tuesday, taking the total levy imposed on imported China goods from the Trump administration to 20%.
The major U.S. stock indexes ended sharply lower on Monday after Trump’s announcement, with the tech-heavy Nasdaq Composite particularly hard-hit, dropping by 2.6%.
The potential for these duties - promised by Trump as part of his election campaign - has weighed on sentiment as they are widely seen by analysts as likely to increase inflation and to cut into corporate profits.
They were also seen as likely to trigger retaliation, and China’s finance ministry duly responded, stating it will impose tariffs of 15% on chicken, wheat, corn, and cotton imports from the U.S., while soybeans, sorghum, pork, beef, fruits and vegetables, aquatic products, and dairy will face a 10% tariff.
Similarly, Canadian Prime Minister Justin Trudeau said late Monday that his country will impose 25% tariffs on some U.S. goods from later this session.
The European Union has also been in Trump’s cross hairs, with the U.S. president saying last week that 25% levies were on their way for Europe-made "cars and all other things."
Trump pauses military aid to Ukraine
Sentiment has also been hit by the news that President Trump has paused military aid to Ukraine following his clash with Ukrainian President Volodymyr Zelenskiy last week.
This move goes beyond the no-new aid stance Trump had taken since assuming office, and increases the pressure on Zelenskiy to accept a deal to open up Ukraine’s minerals to U.S. investment.
ECB poised to cut again
Still, investors will also be buoyed by the prospect of the European Central Bank easing monetary policy once more this week, after eurozone inflation dipped to 2.4% in February.
The ECB meets on Thursday, and is widely expected to cut interest rates again, reducing its key rate by another 25 basis points to 2.50%, in order to stimulate an economy that has been stagnant for nearly two years.
Thales boosted by defence unit
In the corporate sector, Thales (EPA:TCFP) stock rose 9%, adding to the previous session’s hefty 16% gains, after the French aerospace and defence company delivered strong results for the second half of 2024, with performance driven largely by its defence segment.
Mercedes-Benz (OTC:MBGAF) stock fell 4% after German magazine Wirtschaftswoche reported the auto giant has won agreement from its works council to offer buy-outs to staff under a program to cut costs and jobs.
Continental (ETR:CONG) stock fell 8% after the German auto parts supplier expects a weak year for the market in 2025, and has yet to assess the potential impact of new U.S. tariffs on its North American operations.
Lindt & Spruengli (SIX:LISN) stock rose over 5% after the Swiss chocolate giant reported a slightly better than expected full-year operating profit, as it copes with historically high cocoa prices.
Canal+ (LON:CAN) stock rose 2% after the French TV provider reported its first financial results since its December spin-off from Vivendi (EPA:VIV), delivering a performance that exceeded analysts’ expectations.
Crude drops to three-month lows
Oil prices fell Tuesday, as traders weighed the increasing likelihood of a global trade war as well as the potential for major producers to increase output next month.
By 05:55 ET, the US crude futures (WTI) dropped 0.9% to $67.75 a barrel, while the Brent contract fell 1.2% to $70.75 a barrel, falling close to three-month lows.
The Organization of the Petroleum Exporting Countries and allies like Russia, known as OPEC+, announced on Monday plans to proceed with a planned April oil output increase of 138,000 barrels per day, the group’s first since 2022.
The prospect of a worsening trade war between China and the U.S., the world’s biggest economies, has also helped traders largely look past signs of a potential escalation in the Russia-Ukraine war, after the U.S. halted all military aid to Ukraine.