European Stock Markets Fall Underwater
European equity indices plunged on Wednesday as the Trump administration’s sweeping country-specific tariffs took effect,
European indices closed higher on Tuesday, attempting a rebound after sharp losses. Still, this optimism has quickly disappeared as President Donald Trump’s reciprocal trade tariffs on major U.S. trading partners kicked in.
European equity indices plunged on Wednesday as the Trump administration’s sweeping country-specific tariffs took effect, increasing uncertainty over the global economy.
Additionally, Trump fulfilled his threat to raise tariffs on China by an extra 50% in response to Beijing’s retaliation, bringing total U.S. tariffs on Chinese goods to 104%.
Reciprocal tariffs against other economies include a 20% duty on the European Union, a 24% duty on Japan, a 46% tariff on Vietnam, a 25% duty on South Korea, and a 32% tariff on Taiwan.
Trump also indicated late Tuesday that the U.S. would soon announce “a very major tariff on pharmaceuticals,” a move that could significantly impact some of Europe’s largest companies.
Concerns about the fallout from these tariffs and the retaliatory measures from America’s trading partners have weighed on investors amid fears that economic activity will suffer, leading to a global recession, while inflationary pressures rise again.
That said, even with the recent stock selloff, Goldman Sachs believes markets may still be underestimating the risk of a full-blown U.S. recession following the sharp increase in tariffs on Chinese goods.
“Among common recession gauges, only the VIX is at levels associated with past recession peaks: longer-dated equity volatility, credit spreads, and the yield curve are not,” Goldman Sachs analysts noted.
“We believe there is a high chance that we continue to move toward full recession pricing, which would imply weaker equities, wider credit spreads, a deeper Fed cutting cycle, and higher longer-dated equity volatility,” they added.
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