The European automobile industry recently got dealt a serious blow at the hands of President Donald Trump’s announcement of new tariffs. In particular, these tariffs would hit foreign-made vehicles the hardest. The biggest one for your industry is the new 25% tariff that takes effect on April 2. It will only impact automobiles that are not produced in the US and/or by US manufacturers. This unprecedented move has drawn outrage, indignation and condemnation from every corner of the globe. European Commission President Ursula von der Leyen has expressed her dismay at the decision. The tariffs are expected to generate over $100 billion in new annual revenue for the U.S. They have arguably done so at the cost of raising tensions with international trading partners.
In response to the announcement, European markets jumped immediately. The news sent the region’s flagship Stoxx 600 index plummeting by roughly 1% immediately after opening bell. At the same time, the Stoxx Europe autos index was battered, crashing 3.3% in early trading. This decline underscores the market’s concern over the potential economic repercussions of Trump’s protectionist measures.
“We think the direction of travel is clear: average tariff rates are increasing, likely to levels not seen since before World War II.” – Michael McLean
Unsurprisingly, the European Union is disappointed by the U.S.’s go-it-alone approach. It’s still committed to the long-game in finding negotiated solutions that protect its economic priorities. The EU remains committed to discussions. At the same time, it has been actively preparing counter-measures to defend its markets from any disruptions caused by tariffs.
Today, this is no simple economic debate as a fragile global peace flirts with rising tensions and competitive animosities between international markets. The United States and China are two countries that have both made significant progress in the artificial intelligence (AI) field. CIOs are betting heavily, right now, on U.S. AI companies. Relatedly, they understand that there is a better monetization potential and more likelihood of developing revenues and profits than for their Chinese counterparts.
“While both the United States and China have made significant strides in the AI sector, CIO believes there are compelling reasons to favor US AI companies over their Chinese counterparts, especially in the near term.” – Mark Haefele
The new tariffs add to the existing duties already in effect. They are poised to open up competitive advantages to U.S. firms. We have to take issue with one assertion from Barclays – that average tariff rates are increasing. This trend will probably continue as Trump’s policies begin to compound the effects.
“At the end of 2024, the US weighted average tariff rate was 2.5%. After the tariffs that Trump has implemented so far, the average tariff rate has increased more than 3 times to over 8%.” – Michael McLean
Industry insiders are betting on even more tariffs to come. They think rates might reach 15% at the peak once Trump’s policies are fully implemented. This latest escalation is just one step in a larger strategy to bolster U.S. industries. It creates a ripple effect by exerting pressure on foreign competitors.
Despite all this positive momentum, there is still a nervousness in AI investor circles. They fear that Chinese AI developers, using their cheaper models, will undercut U.S. competitors who have invested heavily. U.S. firms’ disproportionate capex is projected to produce even larger competitive advantage.
“Outsized capital expenditures from U.S. firms should drive greater competitive advantage.” – Mark Haefele
Today’s situation underscores just how extreme the difference in capex intensity is between the U.S. and China. In 2025, U.S. firms are forecasted to reach a capex intensity of 20% versus only 11.7% for China. It’s this one difference that really underscores the U.S.’s commitment to ensuring that we maintain an advantage in technology. Making these changes means incurring greater depreciation expense in the near term.
“The higher capex intensity in the US, defined as capex spending divided by revenues, stands at 20% in 2025 compared to China’s 11.7%. This disparity highlights the US’s commitment to maintaining a technological edge, even though it may lead to higher depreciation-related expenses in the short term.” – Mark Haefele