European shares log worst day in over six months after Trump's tariffs materialize

By Nikhil Sharma and Purvi Agarwal

(Reuters) - European shares retreated from record highs on Tuesday, joining a global sell-off after U.S. tariffs on Canada, Mexico and China took effect, as investors worried about the hit to global growth and whether similar levies could be imposed on Europe.

The pan-European STOXX 600 index closed 2.1% lower, and logged its worst day since August 2024.

All regional bourses closed the day in the red, with the German benchmark falling 3.5% from record highs hit on Monday.

The threatened duties came into effect early on Tuesday, hitting hopes that they would be further delayed for more negotiations.

Automakers were the worst hit, with Stellantis dropping 10.2%, BMW losing 5.9% and Ferrari down 4.4%.

The automobiles and parts sector fell 5.4%, its biggest single day fall since March 2022.

"Until a few days ago, there was still hope that Trump was threatening tariffs, but wouldn't put them through. Now it's clear that he is and global equity markets are a bit shocked by that," said Joris Franssen, head of the dividend and value team at Van Lanschot Kempen.

"Automobile makers have part of their supply chain and manufacturing outside of the U.S., which will hurt these businesses... the big question is if they are able to price these tariffs through to the end consumer."

Financial services and banks fell 3.7% and 3.8% respectively, while falling oil prices dragged energy stocks 4.2% lower.

Investors were concerned about the European Union being the next target, as Trump floated a 25% duty on cars and other imports from the EU last week.

The Euro STOXX volatility index surged to a high of 22.90 points in the day, its highest since August 2024.

China, hit with an additional 10% duty on the already existing 10%, retaliated with a 10%-15% limited levy. Luxury stocks exposed to the country declined, with Hermes, Kering and LVMH falling between 2% and 4%.

The broader aerospace and defence sector, that hit a record high in the previous session on prospects of higher military spending in the region, reversed gains to fall 1.5%.

Most sub-sectors on the STOXX 600 closed lower, with the exception of utilities that ended slightly higher and food and beverages that gained 1.2%.

Switzerland's Lindt & Spruengli jumped 8.2% after reporting a slightly better-than-expected full-year operating profit.

Away from tariffs, Trump paused military aid to Ukraine, reinforcing that European countries may need to increase their defense spending.

London's abrdn and France's Thales gained 7.7% and 2.5% after reporting stronger than expected earnings in 2024.

Continental AG tumbled to the bottom of the STOXX 600 after a grim autos outlook for 2025.

(Reporting by Nikhil Sharma and Purvi Agarwal; Editing by Sherry Jacob-Phillips, Shinjini Ganguli, Alexandra Hudson)