Flags of the European Union fly outside the Berlaymont Building, the European Commission headquarters, in Brussels, Belgium, Jan. 29, 2025. [Photo/Xinhua]

European shares dropped this week as a broad sell-off took hold, fueled by mounting concerns over the fallout of "Trumpcession," a term coined by economists to describe the turbulence triggered by "erratic" trade and economic policies of U.S. President Donald Trump.

The escalating strain in transatlantic trade relations has sparked fears that the European Union (EU) may not escape unscathed if "Trumpcession" comes to pass.

SPIRALING ESCALATION

Earlier this week, the EU said it would retaliate against Trump's 25-percent tariffs on steel and aluminum with countermeasures on 26 billion euros (28 billion U.S. dollars) worth of U.S. imports, including boats, bourbon and motorbikes.

"As the United States is applying tariffs worth 28 billion dollars, we are responding with countermeasures worth 26 billion euros," European Commission President Ursula von der Leyen said in a statement, noting that the U.S. tariffs affect approximately 5 percent of total EU goods exports to the United States.

Trump quickly hit back, threatening to slap a 200-percent tariff on EU wine and other alcohol products.

"If this tariff is not removed immediately, the United States will shortly place a 200-percent tariff on all wines, champagnes and alcoholic products coming out of France and other EU-represented countries," Trump wrote on his social media platform Truth Social.

Samina Sultan, an economist at the German Economic Institute, said the resulting uncertainty harms corporate investments and the broader economy. "This could also put jobs at risk on both sides of the Atlantic."

Thomas Gitzel, chief economist at VP Bank in Liechtenstein, warned that the current U.S. tariffs are just the start of escalating trade barriers. "A global trade war is steadily gaining momentum, with growing risks of further intensification," he said.

ADDING FUEL

Although U.S. tariffs impact just 5 percent of EU exports, they will hit the steel and automotive industries hard, which are already grappling with high costs and weak demand.

The U.S. steel tariffs will "hit on various levels, at a time already challenging enough," said Gunnar Groebler, president of the German Steel Association. According to the association, up to 20 percent of the EU's steel exports go to the United States, the second-biggest export market for EU steel producers.

Trump's 25-percent tariffs on autos are "no small issue for the EU," according to a study by Oxford Economics. Citing its estimates that exports from German and Italian automakers to the United States can drop by 7.1 percent and 6.6 percent due to the auto tariff, the study warned that the EU automotive industry is "highly vulnerable" to U.S. tariff threats.

David Bahnsen, chief investment officer at the Bahnsen Group, highlighted that "tariff talk, reversal, speculation and chaos only foster uncertainty."

Echoing this view, Angel Gavilan, director of economy at the Bank of Spain, said uncertainty can significantly slow down the economy as people and businesses may delay consumption and investments, which lowers overall demand and slows economic growth.

DEBT CRISIS

Desmond Lachman, a senior fellow at the American Enterprise Institute and a former IMF official, warned that Trump's tariffs could trigger a Europe-wide recession and another debt crisis in the eurozone.

He said the German economy is in a prolonged downturn, while Italy and France face severe sovereign debt issues, citing data that shows their public debt-to-GDP ratios are now higher than during the 2010-2012 eurozone debt crisis.

Eurozone countries are bound by a unified monetary policy from the European Central Bank. This means countries like Italy and France cannot set independent interest rates or exchange rate policies to boost domestic exports and consumption.

Additionally, these high-debt countries are struggling to reduce their debt burden by boosting exports to Germany. But the German economy is in a weak growth phase and import demand is declining.

Christine Lagarde, president of the European Central Bank, said it was "impossible" to guarantee that policymakers would meet the 2-percent inflation target in the short term, citing global volatility. She added that tariffs "are not good at all and are net negative on pretty much all accounts."

"When the magnitude and distribution of shocks become highly unpredictable, we cannot provide certainty by committing to a specific (interest) rate trajectory," she noted.