In August, merchandise exports from the EU-27 to the US fell to EUR 33 billion, which is the lowest level in four years and a 22% drop compared to August 2024. This decline was influenced by the 15% tariffs from the EU-US trade deal enacted in July. Germany, which exports heavily to the US in sectors like automobiles and pharmaceuticals, experienced a 24% year-over-year decrease in exports. Before the trade deal, EU exports from January to July had increased by 14% compared to the same period in 2024. The drop in US exports sharply affected overall EU exports, which reached EUR 184 billion in August—this is the lowest figure in 43 months and a 7% decrease from the previous year. Exports to China also fell, impacted by challenges faced by Chinese consumers and growing competition from Chinese firms. In August, the EU’s trade balance shifted to a deficit, the largest since April 2023, which was somewhat offset by a nearly 5% decline in EU imports year-over-year. Additionally, the Euro’s strength adds to the trade difficulties, even as services exports and new trade routes provided some relief. Weak net exports may hamper growth for the rest of the year and into 2026.

Slowdown in the European Union

There are strong signs of a slowdown in the European Union, primarily due to a sharp decline in exports to both the United States and China. This economic drag makes it less likely for the European Central Bank to increase interest rates, putting downward pressure on the Euro. Derivative traders might want to prepare for a weaker Euro against the US dollar, possibly by buying put options on the EUR/USD pair. The recent flash estimate for the Harmonised Index of Consumer Prices (HICP) in the Eurozone was 1.9% for September 2025, just below the ECB’s target. This indicates that the central bank will likely continue a dovish approach, especially when compared to the Federal Reserve’s more aggressive stance. A similar divergence in monetary policy during 2022-2023 led to notable weakness in the EUR/USD exchange rate. With German exports to the US down 24% in August, we expect major challenges for Germany’s stock index, the DAX. This index is largely supported by export-focused companies in the automotive and pharmaceutical sectors, which are directly affected by US tariffs. Traders might consider shorting DAX futures or buying put options on ETFs that track major German stocks.

Uncertainty in Trade Flows

Data from the German Association of the Automotive Industry (VDA) showed that new vehicle exports to North America dropped over 30% in September 2025, confirming this troubling trend. This situation is similar to the downturn during the 2018 trade disputes, which caused a prolonged period of weak performance for European auto stocks. Historical patterns suggest that the current decline could last several more quarters. The ongoing Section 232 investigations in the US create significant uncertainty about future tariffs, potentially disrupting trade flows into 2026. This uncertain environment often leads to increased market volatility. We believe that going long on volatility, such as by purchasing call options on the VSTOXX index, could serve as an effective hedge or a speculative investment. Create your live VT Markets account and start trading now.

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