European shares fell to a two-week low on Thursday, led by auto stocks after U.S. President Donald Trump's plans for 25% import tariffs on all vehicles and foreign-made auto parts fuelled fears that a trade war could slow global growth.
The pan-European STOXX 600 (.STOXX), opens new tab was down 0.8% as of 0847 GMT. The benchmark index for Germany (.GDAXI), opens new tab, among the biggest supplier of car and car parts to the United States, fell 1.1%.
Shares of Volkswagen (VOWG.DE), opens new tab, the most vulnerable among German carmakers to tariffs due to its large supply base in Mexico and lack of U.S. production for its Audi and Porsche brands, dropped 3.2%.
Chrysler parent Stellantis (STLAM.MI), opens new tab slumped 5.2%, BMW (BMWG.DE), opens new tab fell 4.2%, Porsche (P911_p.DE), opens new tab slid 4.6%, car parts maker Continental (CONG.DE), opens new tab shed 3.2%, while Volvo Cars (VOLCARb.ST), opens new tab slipped 1.3%.
The STOXX 600 autos sector (.SXAP), opens new tab slumped more 3.1%, on track to erase all of its gains so far this year.
Car industry stocks ranging from the U.S. to Asia were hit hard as the new levies could increase the cost of an average U.S. vehicle by thousands of dollars, given the intertwined manufacturing operations across Canada, Mexico and the United States.
Germany's economy minister and its auto association slammed the newly announced U.S. tariffs, warning that they would harm both European and U.S. economies, and called for urgent negotiations to avert a spiralling trade war.
"Tariff uncertainty is likely to be the main market driver over the next few weeks, and we believe markets are under-pricing trade risks," Ajay Rajadhyaksha, global chairman of research at Barclays, said in a note.
The STOXX 600 index is headed for the first monthly drop in this year as back and forth around U.S. trade policies stoked fears of a global slowdown.
Still, the index is set for its strongest quarterly performance in two years, helped by hopes of an economic boost from Germany's historic fiscal spending and a rotation out of U.S. stocks.
"The medium-term outlook for Europe has improved amid the EU's reaction to Trump and German fiscal boost. But do not count the U.S. out as the near-term overhangs begin to clear," Rajadhyaksha said.
Rate-sensitive bank stocks (.SX7P), opens new tab slid 1.6% alongside a fall in Euro zone bond yields as investors priced in more interest rate cuts from the European Central Bank this year.
