EUAs fall on Trump’s tariff shock

On April 2, 2025, President Donald Trump announced a sweeping “reciprocal tariff” policy that turned out to be significantly tougher than many had anticipated. The new executive order imposes a baseline tariff of 10% on all imports, with significantly higher levies targeting specific countries based on perceived trade imbalances and non-tariff barriers. The administration claims this approach is designed to promote fairness in global trade and revive domestic manufacturing. However, the policy has already triggered sharp criticism and countermeasures from several international partners, particularly within the European Union.

The reciprocal tariffs vary by country, with the European Union facing a 20% import levy, while China is subject to a total tariff rate of 54%. 

Global financial markets responded negatively to the announcement. European stock indexes, including the Stoxx 600, opened significantly lower, reflecting market anxiety. Several European multinationals, including Adidas and Volvo Cars, saw their share prices fall sharply. EUAs also tumbled in response, dropping by nearly EUR 2 to EUR 67, as the outlook for industrial activity and economic growth weakened.

Perhaps the most disruptive sectoral component is the 25% tariff on all imported vehicles, which took effect immediately after the executive order was signed. The move affects not only finished vehicles but potentially also components such as engines and transmissions. European policymakers are rushing to quantify potential job losses and GDP effects across member states.

European countries have expressed unified opposition to the tariffs, citing their potential to undermine both economic stability and diplomatic relations. European Commission President Ursula von der Leyen condemned the tariffs as a “major blow to the world economy” and warned that the EU is prepared to launch countermeasures should negotiations fail.

Several EU countries are particularly exposed due to their industrial profiles:

• Germany faces significant pressure due to its automotive exports. Major car manufacturers such as Mercedes-Benz, BMW, and Volkswagen are among the most affected, and German authorities have flagged the potential for production slowdowns and job losses.
• Slovakia is especially vulnerable. It produces more cars per capita than any country globally and relies heavily on U.S. exports. Economists warn that Slovakia could suffer the largest relative economic damage among EU nations from the auto tariffs.
• France criticized Trump’s policy as “imperialist,” with officials warning of likely EU retaliatory action beginning mid-April. President Emmanuel Macron has scheduled consultations with affected industry leaders to assess the domestic impact and prepare policy responses.
• Spain also condemned the tariffs as “unjustified.” Economy Minister Carlos Cuerpo confirmed that Madrid would take necessary steps to protect Spanish companies and consumers while remaining open to dialogue.
• The United Kingdom, though facing a relatively modest 10% baseline tariff due to its balanced trade with the U.S., noted that the broader global disruption still poses a serious risk to its open and export-driven economy.

The outlook for Trump’s tariff policy remains uncertain. His administration has previously walked back announced measures—most notably by exempting Canada and Mexico after extensive negotiations—offering some hope that the current tariffs could be temporary. Still, it is too early to predict any reversal with confidence.

For the European Union, the situation remains challenging. The 20% tariff on EU goods and the 25% levy on auto imports directly threaten key export sectors. As a result, market sentiment has turned increasingly bearish, contributing to short-term downward pressure on EUA prices amid expectations of slower industrial activity. Given the current economic and political landscape, we expect the volatility to continue in the near future. However, the possibility of dip purchasing by compliance entities could help support the bottom for EUA prices.

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