Europe's pharma, car giants most at risk from Trump's tariff threats

By Chloé Meley, Maggie Shiltagh, Ignacio Gonzalez and Rachel Phua

 

European earnings face significant headwinds should US President Donald Trump’s tariff threats materialize, with the region’s key growth sectors the most exposed.

 

Potential tariffs could dent Stoxx Europe 600 earnings by 3 per cent to 7 per cent, Bloomberg Intelligence data shows. The health care, industrials and consumer discretionary industries, which are expected to make up more than half of the index’s earnings growth this year, face the biggest risk.

 

EU exports to the US reached $605.8 billion in 2024, according to the US Census Bureau. Pharmaceutical companies are particularly vulnerable, according to BI strategists Laurent Douillet and Kaidi Meng. Novo Nordisk A/S generated 58 per cent of revenue in the US in 2024, while it was almost half for Sanofi SA.

 

 

Trump ordered his administration on Thursday to consider imposing reciprocal tariffs on a country-by-country basis, raising the prospect of a wider campaign against a global system he says is tilted against the US. He singled out the European Union, Japan and South Korea as potential targets, and the auto, semiconductor and pharmaceutical industries. All studies should be complete by April 1 and Trump could act immediately afterward.

 

On the consumer discretionary front, carmakers account for 10 per cent of European exports to the US and the country is a key market for luxury goods. Trump’s new 25 per cent tariff on Mexican and Canadian imports from March 6 could strip €6 billion ($6.3 billion) from operating profit at Stellantis NV, Volkswagen AG, BMW AG and Mercedes-Benz Group AG, BI data shows. 

 

Around 65 per cent of the own-branded cars Volkswagen sells in the US are made in Mexico. That means it will need to increase capacity in the US or exit the market altogether, Stifel analyst Daniel Schwarz said.

 

Global supply chains put industrial companies at a disadvantage when trade tensions escalate. Swedish companies Sandvik AB and Hexagon AB are at risk from the tariffs on Canada and Mexico as they’re exposed to the automotive sector, BI’s Pauline Eschbach said. Further pain could come from potential tariffs on European exports of machinery and equipment.  

 

Among the top 20 European goods exported in 2023, 12 belong to those three highly exposed sectors. A 10 per cent to 20 per cent tariff on those categories – which include pharmaceuticals, cars, machinery and alcoholic beverages – would slash around 1.1 per cent to 2.1 per cent of sales and 3.3 per cent to 6.6 per cent of operating profits, BI research shows.

 

Among carmakers, the higher end of the market would be more resilient. “Premium car manufacturers are in a relatively better position to absorb the additional costs through price adjustments as their customer base tends to be more willing to accept price increases,” Scope Ratings analyst Eugenio Piliego wrote in a note. 

 

Past experience with 2018 tariffs also means some large industrial firms are better prepared to mitigate the impact through supply-chain localization, BI analyst Karen Ubelhart said.

 

Diageo Plc, which owns Don Julio tequila and Johnnie Walker whisky, removed its medium-term guidance, with Chief Executive Debra Crew saying US tariffs on Mexico and Canada could “very well impact” momentum. 

 

Political uncertainty has increased “due to the emergence of populism, patriotism, and protectionism in a number of economies,” Finnish cranemaker Konecranes Oyj said in its fourth-quarter report, adding that these risks may hurt profitability.

 

Tariffs have become a hot topic in European earnings calls and releases.   

 

US companies are also talking more about tariffs. Mentions during earnings calls more than doubled to over 1,700 from last quarter among companies listed in the Russell 3000 worth at least $1 billion, with the reporting season still in train.

 

The trade war “was tough on stocks in 2018 and is a risk to the outlook again in 2025,” BI’s Gina Martin Adams and Gillian Wolff wrote in a note. 

 

S&P 500 Index earnings per share would fall by 2 per cent to 3 per cent if the full suite of proposed tariffs are imposed, according to Goldman Sachs Group Inc. strategists. Either profit margins will shrink if companies absorb the cost, or their sales will fall if they pass the cost on to customers, said David Kostin, Goldman’s chief US equity strategist.

 

Chipotle Mexican Grill Inc.’s cost of sales would rise about 60 basis points, given that it sources about 2 per cent of its sales from Mexico, Chief Financial Officer Adam Rymer said. Toymaker Mattel Inc. said it may have to raise prices.

 

Echoes of 2018 

Trump’s first-term tariffs, mainly targeting China, have shaped expectations for this year’s trade war. While China should better withstand the impact this time around — given rising exports to emerging markets, limited revenue exposure to the US and tech stocks’ domestic focus — other Asian countries are more exposed.

 

Vietnam, seen as an alternative to China since Trump’s first presidency, might be at greater risk because of its growing trade surplus with the US. 

 

While Southeast Asian governments and businesses “weathered the first Trump term and have that experience as a point of reference to draw upon, they should anticipate greater turbulence in Trump’s second term,” Stephen Olson, a former US trade negotiator now with the ISEAS-Yusof Ishak Institute, said in a commentary piece. 

 

South Korea and India’s large steel industries could suffer from the 25 per cent tariff on steel imports. Japan’s relatively small exposure to the US may help to limit the severity of any levies.  

 

Some are trying to get ahead of the problem. Technology companies have noticed increased purchases before any tariffs set in. Some revenue was pulled into the last quarter from the current one, Intel Corp. said. Microsoft Corp.’s operating systems and devices revenue rose more than expected, partly because of tariff fears, CFO Amy Hood said.