What’s going on here? The European Union’s relationship with the US is on the rocks, so it’s chatting up new (trade) partners – and bracing for a messy breakup. What does this mean? The US is threatening to slap a 30% tariff on European imports next month, unless the two regions can patch things up before then. But Europe’s policymakers won’t be taking it lying down. They’ve already hit pause on $24.5 billion worth of US goods by implementing retaliatory tariffs, and there’s a much tougher $84 billion list at the ready in case talks fall apart. The EU’s exploring its options in the meantime, deepening ties with other tariff-hit economies like Canada and Japan, as well as chasing new connections with India and Indonesia. But not everyone’s on the same page. Germany’s pushing to work things out with the US – and you can see why. Experts are warning that eurozone output could dip 1.2% by 2027 if the tariffs land, with carmakers, metals, and luxury goods hit the hardest. Why should I care? For markets: Cue the breakup songs. Europe’s earnings have been rocky as it is – even before any potential new tariffs. Profit forecasts for the Stoxx 600 index have said goodbye to growth and hello to shrinkage, especially in the consumer goods, energy, and financial sectors. And the stronger euro isn’t helping matters: it’s making European exports pricier at the same time as global demand is weakening. Safe to say that investors are bracing for a letdown. Zooming in: Get your tub of ice cream ready. If a full-blown tariff hit plunges Europe’s fragile economy into a slowdown, the European Central Bank could be forced to cut interest rates again. See, even with tariffs pushing some prices up, economists think that the resulting weaker demand would drag the economy down overall – and inflation with it. That’s why some are now expecting interest rates to fall to 1% next year from 2% today. | 