Barclays estimates that US tariffs on the European automotive sector could knock as much as $75 billion from growth in the Eurozone next year.

Trump has threatened to impose 25% tariffs on all autos and auto parts coming into the US to extract concessions from trading partners including the European Union and Canada.

He is yet to follow through on such threats, but with trade set to dominate the agenda at this weekend's G20 conference in Buenos Aires, Argentina, discussion of auto tariffs is set to resurface.

A 25% tariffs on autos could see euro area growth from 1.6% to 1.2%.

An escalation of the global trade conflict which saw US President Donald Trump levy increased tariffs on the European automotive sector could knock as much as $75 billion from growth in the eurozone next year, according to analysts at Barclays.

Writing this week, a Barclays team led by Francois Cabau estimated that if Trump were to impose 25% tariffs on the import of European cars into the US, it could knock as much as 0.4 percentage points off growth in the single currency area in 2019. That would equate to around $75 billion of lost output.

Trump has threatened to impose 25% tariffs on all autos and auto parts coming into the US to extract concessions from trading partners including the European Union and Canada.

He is yet to follow through on such threats, but earlier this month it was reported that the White House was circulating a report discussing the prospect of auto tariffs, and with trade set to dominate the agenda at this weekend's G20 conference in Buenos Aires, Argentina, the threat of auto tariffs is set to resurface.

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"Higher tariffs on EU automobiles have been directly cited and thus remain a serious threat ahead of the G20 meetings," Barclays' team said on Thursday.

"We explore a scenario in which the US increases tariffs on EU passenger cars from 2.5% to 25%."

"We estimate an increase of US tariffs on European cars from the current 2.5% to 25% would result in a drop in euro-area net exports of roughly 2.0%, lowering EA GDP growth about 0.1pp through the direct impact of trade on growth," the note said.

Combining a traditional mechanical analysis, and a Barclays specific value at risk model, the bank estimates that this would subsequently lower estimated growth in the euro area from 1.6% to 1.2% in 2019.

Barclays

Such a fall in GDP growth, Barclays' team says, could force the European Central Bank into a "policy response."

Although it doesn't specify what form of response, it would likely come in the form of either the restarting of quantitative easing — which is set to come to an end at the end of December — or a further cut in interest rates, below their current level of -0.4%.

Barclays' team was keen to stress that a 0.4 percentage point drop in GDP growth is not its base case, but added that the "potential ramifications are serious enough to warrant a deep exploration of the issue."

It added however, that the initial 0.4 percentage point estimate could increase "as the US-China trade dispute escalates, putting further stress on the Chinese economy, and rippling into Europe."