After years of positive growth, the Eurozone’s trade surplus recently hit its lowest mark ever, a testament to increasing pressures on European exporters. In June, the seasonally adjusted trade surplus fell to €2.8 billion. This sharp drop from €15.6 billion in May further highlights the unprecedented pressures the region is under at this moment in time. This remarkable decline is built on three key pillars. The euro has appreciated against the dollar, the United States has placed mounting tariffs on EU goods, and other global uncertainties have contributed to a slowdown in global trade.
By the start of this week the euro had appreciated since the start of the year. This surge has rendered European exports significantly less competitive in international markets. This appreciating currency is a significant headwind for exporters who depend on foreign sales to fuel their enterprises.
The damage from U.S. tariffs has finally started to show. This has been a major issue since June when European exporters faced a 10% tariff on their products. Automotive exporters, especially, have been clobbered even more, suffering punishing rates of 25%. Steel and aluminum producers have been hit hardest in retaliation, confronted by tariffs as high as 50%. These nonsensical barriers to trade are making a dangerous situation for profitability even worse. They’re driving a crippling erosion of the international competitiveness of European goods.
In June, European exports to the U.S. dropped off a cliff, down 10% from last year. Ironically, at the same time, exports to China went down too, decreasing by 12%. What’s more, exports to promising new markets like India and Brazil dropped by nearly 5%. The double whammy of tariffs and currency fluctuations have combined to make a perfect storm that is hitting general export volumes hard.
Adding to the woes of the Eurozone economy, the most recent data point shows that Eurozone exports fell by 2.4% m/m in June. This drop comes at a time when imports are up more than 3%. This increase is an added headache to an already tumultuous exporting sector. As imports increase, the contrast grows starker. At the same time, European producers are having an increasingly difficult time holding on to their market share.
European exporters have had to contend with intense competition on all other major trade lanes. Other countries, seeing a competitive opportunity, are increasing their attempts to gain market share in industries European manufacturers used to dominate. Exporters have an additional layer of difficulty in this game. They’re already feeling the pinch from lost demand due to tariffs and currency shifts.
This combination of developments poses structural challenges to European exports. Therefore, they might be facing a rocky few months ahead. Add in a cloud of mystery around the future of global trade dynamics, and the burden only increases. Exporters are now left to wrestle with uncertainty surrounding future market access and the risk of even more tariffs being introduced.