The Weekly Brief CW 13: Europe’s Export Model Under Pressure

A note on sourcing: This issue draws on data and statements published through 18 March 2026, covering the period since the outbreak of the Iran conflict in late February. Inflation figures are the latest available national releases for February 2026. GDP figures refer to Q4 2025 preliminary or first estimates. Where data reflects modelled projections rather than observed outcomes, this is noted in the text. Confidence in headline macroeconomic data is high; confidence in forward-looking scenarios is, by nature, lower.

Each week, the ESCP Economics Society picks one economic story worth understanding in depth: something emergent, contested, or simply underreported. This week we examine why the European Central Bank finds itself unable to move clearly in either direction - and why a new energy price shock may have made that problem significantly worse.

Europe’s economic success has long been rooted in its ability to produce high-quality goods and sell them globally. Cars from Germany, pharmaceuticals from Belgium and Ireland, precision machinery from northern Italy, chemicals from France and the Netherlands: the European economic model is, at its core, an export model. It depends on open markets, predictable rules, and the ability to access foreign customers without prohibitive costs at the border. For decades, the transatlantic relationship with the United States was the cornerstone of that model. The US has consistently been Europe’s single largest export market, absorbing roughly one in five euros of EU goods exports. (Eurostat / DG TRADE, 2024)

That foundation is under pressure in a way it has not been in the postwar period. Since the beginning of 2025, the United States has used trade tariffs not just as a conventional instrument of commercial policy, but as a tool of industrial strategy, geopolitical leverage, and domestic politics simultaneously - a shift recently captured in unusually direct terms by Mark Carney at the Economic Summit in Davos earlier this year. The resulting uncertainty, a rapid sequence of tariff threats, partial deals, legal rulings, and new investigations, is not simply a negotiating phase that will resolve itself. It represents a structural shift in how the world’s largest economy approaches trade. For European businesses and policymakers, understanding what has happened, what is at stake, and what the options are has become a basic requirement of economic literacy.

This brief explains the sequence of events, maps the sectors most exposed, and draws out what the pressure on Europe’s export model means for the economies around our six campuses.

From deal to disruption: twelve months of US tariff politics

To understand where things stand today, it helps to trace the sequence of events over the past twelve months - the current situation is not the result of a single policy decision but of a series of moves, counter-moves, and legal developments that have left the transatlantic trading relationship in a state of uncertainty it has not experienced in the postwar period.

Spring 2025: escalation

The shift began in March 2025, when the US imposed 25% tariffs on steel and aluminium imports - reviving a tool last used briefly in 2018, during Donald Trump’s first term, now deployed with renewed political conviction. The EU announced proportionate countermeasures in response. (European Commission, March 2025) A month later, the policy broadened significantly. In April 2025, the US introduced broad “reciprocal” tariffs on imports from a wide range of trading partners, including the EU. The justification was straightforward: the US would mirror the trade barriers imposed on its own exports. While many economists challenged both the logic and the measurement behind this approach, the political framing proved compelling and effective.

Summer 2025: a deal - and a brief moment of calm

The summer brought what looked, briefly, like resolution. A political agreement reached Scotland in July 2025 and formalised in a joint EU-US statement in August, introduced a 15% ceiling on tariffs - described as a “clear ceiling” with “no stacking” of additional charges on top. Specific sectors received exemptions: aircraft and aircraft parts, generic pharmaceuticals and certain industrial goods. In return, the EU agreed to lower its own tariffs on a range of US products. (EU-US Joint Statement, 21 August 2025; European Commission, 27 July 2025) For a few months, the agreement seemed to stabilise the transatlantic relationship. Businesses could plan, at least provisionally, around a known ceiling. Uncertainty had not disappeared - but it had become more manageable, contained within a known framework. Yet this stability was clearly asymmetric. The deal largely reflected US priorities, while the EU accepted terms that it had limited leverage to resist, primarily to avoid a broader escalation. What emerged was not a balanced settlement, but a defensive compromise, one that reduced immediate pressure while leaving the underlying imbalance, and the risk of renewed conflict, firmly in place.

February 2026: the legal ground shifts

That stability proved short-lived. In February 2026, the US Supreme Court ruled that the “reciprocal tariffs” imposed under the International Emergency Economic Powers Act were unlawful, a decision that abruptly removed the legal foundation of a large part of the tariff regime. (European Parliament EGOV Briefing, March 2026) The administration reacted within days: Rather than stepping back, it introduced a new 10% global surcharge on imports under Section 122 of the Trade Act of 1974, which allows temporary measures for up to 150 days. This was not a retreat. It was a workaround, the instrument changed, the strategy did not. The message was clear, tariffs remained a central lever of US economic policy.

March 2026: a new and more durable threat

In March 2026, US trade policy entered a more structured and potentially more consequential phase. The Office of the United States Trade Representative launched new investigations under Section 301 of the Trade Act, a mechanism which many students may recognise from the US–China trade conflict of 2018. Section 301 allows the US to investigate “unfair” foreign trade practices and respond with tariffs or other restrictions. The current investigations target alleged “structural excess capacity and production,” - the claim that foreign governments subsidise industries in ways that give their exporters an unfair advantage, as well as “forced labour” compliance. The EU is among the economies named. (USTR Press Release, 11 March 2026; Federal Register, March 2026)

Comments are open until mid-April, with formal hearings beginning in May 2026. Unlike the emergency powers struck down by the Court, Section 301 operates through a slower, more procedural process. Yet this very structure makes it more consequential. It creates a formal record, a legal justification, and a pathway to measures that are harder to reverse. For firms, this shifts the challenge: tariffs are no longer something to wait out, but something to actively engage with.

What is at stake: Europe’s industrial exposure

The scale of Europe’s dependence on the American market becomes clear in the numbers. In 2024, the EU exported roughly €532 billion worth of goods to the United States - around one in every five euros of total EU exports. By 2025, that figure had risen to approximately €554 billion. (Eurostat / DG TRADE, 2024 and 2025) This is not a marginal trading relationship. It is central to Europe’s industrial model. Around 94% of these exports are industrial goods: machinery, chemicals, vehicles and pharmaceuticals, meaning that tariff policy aimed at protecting US manufacturing cuts directly into the core of European industry. (European Parliament EGOV Briefing, March 2026)

The exposure, however, is not evenly spread. Different sectors face very different levels of risk. Some sectors face structural pressure; others operate in a more politically contingent space. Understanding that distinction is key.

Pharmaceuticals are Europe’s single largest export category to the US, worth approximately €120 billion in 2024. While generic drugs and selected products benefited from partial exemptions under the 2025 Framework Agreement, those exemptions depend on political stability that has already proven unreliable over the past twelve months. Machinery and equipment, worth approximately €113 billion, face a more direct threat. These exports lie at the center of the US re-industrialisation narrative: the political project of bringing manufacturing capacity and jobs back to US soil. When American policymakers argue that foreign economies maintain “structural excess capacity,” they are effectively targeting foreign producers - especially in Europe and Asia - whose governments have, in Washington’s view, subsidised production beyond what markets would sustain. The Section 301 investigation launched in March 2026 reflects precisely this concern. (USTR, March 2026)

Automotive exports, at approximately €49 billion, carry a long history of political sensitivity. The sector has long been framed through national security arguments and remains a recurring focal point of US trade policy. For companies like Volkswagen, the implications are immediate. US investment is no longer a straightforward expansion decision, but a conditional bet shaped by tariff expectations and policy uncertainty. (Handelsblatt, 2026)

Chemicals, agriculture and food, and aerospace complete the picture. Chemicals, roughly €51 billion excluding pharmaceuticals, face similar “overcapacity” narratives as machinery. Agricultural and food exports, around €32 billion, are politically salient consumer goods, often targeted in retaliation because their price increases are visible and contentious. Aerospace and transport, while partially protected by Framework exemptions for aircraft and parts, remain exposed through complex cross-sector supply chains. (Eurostat / DG TRADE, 2024; EU-US Joint Statement, August 2025)

Three things that make this more than a trade dispute

What distinguishes the current situation from a conventional trade dispute is that tariffs are no longer just about the price of goods at the border. Three features make the current environment structurally different from past trade tensions.

1 | Legal uncertainty has become a cost in itself

The rapid sequence of legal shifts - from emergency powers to Supreme Court rulings to new Section 122 and 301 instruments has created an environment in which businesses cannot plan with confidence. An investment that makes sense at 15% tariff looks fundamentally different at 25%, or if the legal basis for the current regime is challenged again.

2 | Trade policy is now inseparable from energy, technology, and security

The 2025 EU-US Framework Agreement was not simply a tariff arrangement. It tied market access to commitments on energy purchases - particularly US liquefied natural gas by 2028 - as well as AI chips, investment flows, and defence procurement. (EU-US Joint Statement, 21 August 2025) This bundling is significant. Tariffs on European cars or machinery are no longer set on purely economic grounds, but are linked to a wider set of strategic expectations - ranging from energy purchases to technology alignment and defence commitments. For European businesses, this creates a structural disconnect: their ability to access the US market increasingly depends on policy decisions they neither control nor can meaningfully influence

3 | The investment relationship matters as much as trade flows

Focusing only on trade flows understates the depth of the transatlantic relationship: The European Commission estimates that total EU–US investment stocks amount to around €4.7 trillion, with EU firms employing roughly 3.4 million workers in the United States. (European Commission, 2025) This matters for two reasons. First, it provides an adjustment mechanism: European companies facing high tariffs on exports can sometimes absorb the impact by shifting production to US facilities, a practice known as “tariff jumping.” Second, it gives Europe leverage in negotiations. European investment supports millions of American jobs, giving Europe a stake in US domestic economic outcomes. But this integration cuts both ways. Sustained tariff pressure risks weakening the incentive to invest, gradually eroding one of the most stabilising features of the transatlantic economy.

The view from six countries

As with the energy price shock and the ECB dilemma discussed in recent issues, the pressure on Europe’s export model does not affect all our campus locations equally. Each country’s industrial structure shapes its exposure in distinct ways.

In Germany, exposure is among the deepest in Europe. The country’s economic model rests on exporting high-quality manufactured goods, precisely the categories most exposed under the current US trade policy framework. The automotive sector, centred on companies around Berlin, Munich, Stuttgart, and Wolfsburg, faces both the direct impact of higher tariffs and the indirect pressure to shift investment towards US production as a condition for market access. The machinery sector, a cornerstone of German exports, is similarly vulnerable. For students considering careers in German industry, tariff risk is no longer a niche concern - it is part of the baseline operating environment. (Eurostat / DG TRADE, 2024; Handelsblatt, 2026)

In France, exposure runs through pharmaceuticals, chemicals, and aerospace. French pharmaceutical and chemical exports to the US are substantial, and while some categories benefited from partial exemptions under the 2025 Framework, these remain contingent on a legal and political environment that has already proven unstable. The aerospace sector, centred on Airbus and its supply chain, received explicit protections, but is not fully insulated from broader retaliatory dynamics should the transatlantic relationship deteriorate. (EU-US Joint Statement, August 2025; European Parliament EGOV Briefing, March 2026)

In Spain, exposure is more diffuse but no less relevant. The country’s manufacturing base has expanded in recent years, particularly in automotive components and food exports. Agricultural products - olive oil, wine, citrus are among the most politically visible targets in US retaliation scenarios, as their price increases are easily felt by consumers. At the same time, Spain’s deeper integration into European supply chains means that any slowdown in German or French industrial output would quickly transmit to Spanish suppliers. (European Parliament EGOV Briefing, March 2026; Eurostat, 2024)

In Italy, the stakes are particularly direct. Turin, as the historic centre of Italian automotive manufacturing - home to Stellantis and a dense network of suppliers and engineering firms, the city sits squarely within the high-risk segment of European industry. Vehicles, components, and precision parts are all directly exposed to US tariff measures. Beyond automotive, Italy’s clusters in chemicals and precision machinery face similar pressures. For students based here, this is not abstract: the firms most likely to hire them are also those most exposed to shifts in US trade policy. (Eurostat / DG TRADE, 2024; USTR, March 2026)

In Poland, direct exposure to US tariffs is lower than in western Europe, as exports to the US account for a smaller share of total trade. Yet indirect exposure is significant. Poland has become a key manufacturing hub within European supply chains, producing components that are ultimately exported to the US as part of finished goods. When tariffs reduce demand for German cars or French machinery, the impact propagates along the supply chain to Polish producers. As a logistics hub, Poland is also sensitive to broader disruptions in European trade flows. (European Commission, 2025; Eurostat, 2024)

In the United Kingdom the picture is shaped as much by Brexit as by US tariff policy. Outside the EU’s common trade framework, the UK has gained flexibility in negotiating its own trade relationships but has also lost the collective bargaining power of the EU. This leaves it exposed to US tariff pressure in a different way. While London’s financial sector is less directly affected by goods tariffs, it remains sensitive to broader policy uncertainty and shifts in transatlantic investment flows. Meanwhile, the UK’s remaining manufacturing sectors, including aerospace and pharmaceuticals, face risks similar to those on the continent. (European Parliament EGOV Briefing, March 2026)

The bottom line

The central insight from this week’s story is that tariffs are no longer just about the cost of crossing a border. In the current US approach, they function as instruments of industrial strategy, geopolitical leverage and domestic politics. For European exporters, that makes risk harder to manage: the calculation is no longer purely economic. It depends on legal stability, foreign policy alignment, energy and defence arrangements, and the outcome of formal investigations that can take months to resolve.

The European Union has begun to respond by embedding resilience into the system. Legal mechanisms such as the ability to suspend concessions and the Anti-Coercion Instrument are intended to deter escalation and provide a structured response to economic pressure. (EPRS At a glance, March 2026; Regulation (EU) 2023/2675) Yet their effectiveness is constrained by an underlying asymmetry. The EU is more dependent on access to the US market than vice versa, which limits the credibility of retaliation. Deterrence, in this context, is harder to sustain: it requires not only a willingness to act, but the ability to impose costs that meaningfully influence US policy. The EU’s measured response to the March 2025 steel and aluminium tariffs—proportionate, staged, and carefully communicated demonstrates its preference for stability over escalation. (European Commission, March 2025) But this also reflects a structural constraint. In a rapidly shifting legal and political environment, the EU’s room for manoeuvre remains narrower than that of its counterpart, and past playbooks offer only limited guidance.

Economic projections suggest that sustained US tariffs could reduce eurozone growth by between 0.5 and 0.7 percentage points over the 2025–2027 period. (European Parliament EGOV Briefing, March 2026; IMF projections cited therein) In isolation, that is manageable. In context, it is not. It adds to already weak growth, the after-effects of the energy price shock, and the ECB’s limited room for manoeuvre. The accumulation of pressures, rather than any single shock, is the real story.

For ESCP students, the implications run in several directions at once. For those considering careers in European industry automotive, chemicals, machinery, and pharmaceuticals, understanding tariff risk, supply chain exposure and the legal mechanics of trade policy is becoming a core competency, not a niche specialisation. For those interested in strategy or finance, the way firms such as Volkswagen approach US investment decisions as real options contingent on tariff outcomes, rather than linear expansion plans, offers a clear illustration of how capital allocation shifts under policy uncertainty. And more broadly, for anyone thinking about the economic environment in which they will build their career, the pressure on Europe’s export model is not a cyclical issue, but one of the defining structural challenges of the decade ahead.

Sources: Eurostat / DG TRADE — EU goods exports to the US, 2024 and 2025 · European Parliament EGOV Briefing — EU-US trade and tariff developments, March 2026 · EPRS At a glance — Implementation of EU-US Framework Agreement (Turnberry deal), March 2026 · European Commission — Statement on US steel/aluminium tariffs and countermeasures, March 2025 · European Commission — Statement on EU-US Framework Agreement, 27 July 2025 · EU-US Joint Statement — Framework Agreement, 21 August 2025 · Council of the EU — Mandate for implementation of EU tariff commitments, 28 November 2025 · USTR — Press release on Section 301 investigations into structural excess capacity and forced labour, 11 March 2026 · Federal Register — Notices of initiation, hearings, and request for comments (Section 301), March 2026 · US Supreme Court — Ruling on IEEPA-based reciprocal tariffs, February 2026 · Handelsblatt — Automotive supply chain and tariff exposure; VW CEO statement on US investment, 2026 · European Commission — EU-US trade and investment relationship (FDI stock, employment), 2025 · Regulation (EU) 2023/2675 — Anti-Coercion Instrument · IMF — Growth projections cited in European Parliament EGOV Briefing, March 2026.