Insights 
VT 
In August, EU-27 merchandise exports to the US dropped to EUR 33bn, marking the lowest point in four years and a 22% decrease from August 2024. This was partly due to the 15% tariffs from the EU-US trade deal in July. Germany, with a strong export link to the US in sectors like autos and pharmaceuticals, saw a 24% y/y decline. Prior to the trade deal, EU exports from January to July were up 14% compared to the same period in 2024.
The decline in exports to the US significantly impacted overall EU exports to the world, recorded at EUR 184bn in August, the lowest in 43 months and down by 7% y/y. Exports to China also weakened due to challenges faced by Chinese consumers and rising competition from Chinese companies. The trade balance for the EU shifted into deficit in August, marking the largest deficit since April 2023, mitigated by a decrease in EU imports by approximately 5% y/y. The strength of the EUR adds to the trade challenges, despite some relief from services exports and new trade routes. Net exports will likely hinder growth throughout the second half of the year and possibly until 2026.
Slowdown in the European Union
We are seeing clear signs of a slowdown in the European Union, driven by a sharp drop in exports to both the United States and China. This economic drag makes it less likely the European Central Bank will raise interest rates, putting downward pressure on the Euro. Derivative traders might consider positioning for a weaker EUR against the US dollar, perhaps through buying put options on the EUR/USD pair.
The recent Harmonised Index of Consumer Prices (HICP) flash estimate for the Eurozone came in at 1.9% for September 2025, just below the ECB’s target. This reinforces the view that the central bank will remain dovish, especially when compared to the Federal Reserve’s more hawkish stance. Looking back, we saw a similar divergence in central bank policy during the 2022-2023 period, which led to significant EUR/USD weakness.
Given that German exports to the US fell 24% in August, we anticipate significant headwinds for Germany’s major stock index, the DAX. This index is heavily weighted towards export-oriented companies in the auto and pharmaceutical sectors, which are directly in the line of fire from US tariffs. Traders could look at shorting DAX futures or buying puts on ETFs that track major German equities.
Uncertainty in Trade Flows
Recent data from the German Association of the Automotive Industry (VDA) showed that new vehicle exports to North America fell by over 30% in September 2025, confirming the trend. This is reminiscent of the downturn we witnessed during the 2018 trade disputes, which led to a prolonged period of underperformance for European auto stocks. This historical precedent suggests the current weakness could persist for several more quarters.
The ongoing Section 232 investigations in the US create considerable uncertainty about future tariffs, which could further disrupt trade flows into 2026. This environment of unpredictability often leads to higher market volatility. We believe that going long volatility, for instance by purchasing call options on the VSTOXX index, could serve as a valuable hedge or a direct speculative play.
