Tariffs are taxes charged on goods imported from other countries. The charges are seen as a tool to protect domestic industries from foreign competition.
Increasing the price of imported goods is aimed at encouraging consumers to buy cheaper domestic products instead to help boost their own economy’s growth.
Most tariffs are set as a percentage of the value of the goods and in general the importer pays it.
But given countries often respond to tariffs by matching measures of their own, businesses and consumers in both countries can be impacted.
Trump is threatening to impose tariffs on goods imported from the EU to the US to address his country’s long-standing trade deficit with the bloc, which occurs when a country imports more than it exports.
Some 20 EU member states exported more to the US than they imported in 2023, according to Eurostat. The country with the largest surplus was Germany, driven by car and machinery exports, followed by Italy and Ireland.
Trump has repeatedly complained about the EU’s car exports to the US, with fewer vehicles being shipped the other way.
Last week, British business secretary, Jonathan Reynolds, told the BBC that the UK should be exempt from any tariffs, noting that the US does not have a goods trade deficit with the UK.
Following Trump’s comments, the main European stock markets all fell back.
Shares in some of the biggest European carmakers also slumped following concerns over potential import duties to the US.
Volkswagen, BMW, Porsche, Volvo Cars, Stellantis, and truckmaker Daimler Truck all fell between around 5% and 6%. French car parts supplier Valeo slumped 8%.
“We believe around 8 billion euros ($8.18 billion) of VW’s revenues are impacted by tariffs and around 16 billion euros of Stellantis revenues,” analysts at investment bank Stifel wrote in a note.
US shares also fell when trading started, although the main indexes pulled back some of the losses following the news that tariffs on Mexico were being delayed.
The prospect of higher taxes being introduced on imports to the US is concerning many world leaders, because it will make it more difficult for companies to sell goods in the world’s largest economy.
But tariffs are a central part of Trump’s economic policy. He sees them as a way of growing the US economy, protecting jobs and raising tax revenue.
