The Trump administration, on April 2, 2025, announced that new tariffs of 20% and 10% will be applied to goods from the EU and the U.K., respectively, from April 9. Copper, pharmaceuticals, semiconductors, and lumber articles are excluded from these tariffs although specific tariffs may be applied later. The tariffs are on top of the 25% tariffs already announced on auto, aluminum, and steel companies, which are effective from April 3. We understand that the announced tariffs will apply only to goods, while services are not included. We consider the tariffs to be potentially meaningful for the eurozone considering that exports of goods are equivalent to 34% of the region's 2024 GDP and that the U.S. was the largest trading partner, accounting for about 20% of the total exports.

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We analysed our portfolio of rated companies, and concluded that in Europe the auto sector is going to be the most severely impacted, followed by the metal sector, due to the 25% tariff imposed on aluminum and steel imported to the U.S.

For the other sectors, we assume limited or very limited direct effects, as in many cases there are mitigating factors that can soften the potential damage of the tariffs. The most effective of those mitigants are existing local production in the U.S.; the ability to pass, entirely or partially, the tariffs to customers through price increases; and the possibility to redirect sales to other regions.

Longer-term strategic decisions that some corporates are currently considering, including permanent changes in their production footprint, seem more difficult to implement in the current volatile environment. We note that smaller corporates, often rated at the lower end of our rating scale, typically have less bargaining power and less headroom to accommodate lower volumes, deteriorating margins, and weaker credit metrics. In the current environment, that could mean they experience increased pressure on their creditworthiness derived from the potential negative indirect effects on economic growth.

Regardless of the potential for a suspension or revision of the announced tariffs, we believe that international trading conditions are deteriorating. Increasing uncertainty is diminishing corporate visibility and hindering the ability of businesses to engage in essential strategic planning.

What follows is our assessment of how the announced tariffs could affect the credit quality of our European portfolio of rated entities in sectors that produce goods and are most exposed to U.S. import tariffs on the EU and the U.K. Our assessment does not include the potential implications of the tariffs on many other countries outside of Europe, but we note that there are interconnections that can generate significant effects on sales and supply chains that cannot be fully assessed at this stage. We focus primarily on the direct implications of tariffs on these sectors, while we recognize other indirect effects, for instance on economic growth or financing conditions, may also be relevant.

Auto And Auto Suppliers

The March 26 White House Executive Order, which imposed 25% tariffs on autos imported into the U.S., signals a more negative outlook for the global auto industry than our earlier scenario analysis (see "Auto Industry Buckles Up For Trump's Proposed Tariffs On Car Imports," Nov. 29, 2024). We see four specific factors at play:

1) Higher tariffs charged on imports from Europe and the U.K.  This implies greater earnings exposure to tariffs, as well as a potential reduction in the number of models earmarked for price-sensitive consumers. Specifically, if the tariff meaningfully reduces or completely negates a model's contribution margin (the margin after variable production costs), then there is an increased risk that the automaker will discontinue the model. We could therefore revise downward auto production in the exporting country, with immediate negative consequences for suppliers and consumers.

2) Extension of the tariffs to imported parts and components.  Until now, our scenario analysis focused on imports of finished light vehicles to the U.S. because it was unclear whether parts and components would be subject to tariffs. Now, vehicles assembled in the U.S. but with key parts (such as engines, transmissions, and bodies) sourced from outside the country will be subject to tariffs, although we understand that United States-Mexico-Canada Agreement (USMCA)-compliant parts currently remain excluded. That amplifies the exposure of European automakers with assembly lines in the U.S. It also raises the challenge of redesigning the supply chain to increase the U.S. regional value, which would take time.

3) The permanency of import tariffs.  This is probably the most disruptive aspect of the newly released executive order.

4) The extension of the tariffs to the Asia-Pacific region.  This raises the severity of the trade conflict, which now targets Japan and potentially South Korea due to its large account surplus with the U.S.

We believe that Trump's tariff policy will further disrupt the global auto industry, which is already subject to intense competition from Chinese automakers.  Following an update to our estimates on exposure before actionable mitigants, all other things being equal, we forecast the maximum EBITDA at risk from imports of finished vehicles in 2025 to be €10 billion-€11 billion in 2025 (as measured from April to the end of December) for EMEA-based original equipment manufacturers (OEMs).

The estimate reflects a scenario of a 25% import tariff applied to the EU, the U.K., Mexico, and Canada. The amount is equivalent to roughly 15%-16% of the aggregated 2025 EBITDA of Volkswagen, Stellantis, BMW, Mercedes, Volvo Car, and JLR. This compares unfavorably with earlier estimates due to a downward revision of 2025 operating margin guidance even before tariffs, and because of the generally higher tariff applicable to the EU and the U.K. compared to our previous scenario analysis.

Our estimate of the volume risk is about 400,000-600,000 units for 2025 (as measured from April to the end of December). At this stage, our estimate doesn't cover flows of parts and components, but we are working to incorporate this.

The impact on the creditworthiness of automakers and suppliers will depend on the tariffs' permanency and their level.  If the tariffs are permanent, they would likely result in a major divergence from our base case because it would be hard for automakers to mitigate their effects through pricing in the short term, and over the longer term, any production relocation would occur at higher costs and would take at least 12-18 months.

Building Materials

We expect that the direct effects of U.S. tariffs on European building materials products will be minor.  This is particularly the case in heavy industry, where cross-continental trade is limited, and products are usually made locally because they are inconvenient to ship. Even for light industry, trade between Europe and the U.S. is limited.

However, some large European building materials companies with a significant local presence in the U.S. could be moderately affected. This is because, while most production facilities in the U.S. match the local demand, the supply chain footprints for some products extend to Mexico and Canada. This is particularly the case for electrical component manufacturers, which tend to have manufacturing facilities or assembly facilities in low-cost countries or regions, such as Mexico. Electrical components and products also include chips and electronics which are primarily sourced in China and other countries in the Asia-Pacific region.

Most building materials companies are confident that they can pass through additional costs from tariffs, given the sector's solid track record of passing through inflation costs over 2022-2024.  In our view, however, companies might struggle to pass through tariff-related costs quickly and fully, given the current weakness in the residential construction market. That said, we believe any profitability impairments would be moderate. For example, because of U.S. tariffs, we consider that Legrand S.A.'s total cost base could increase by around 2.5% on a yearly basis, potentially affecting its EBITDA margin by a few tenths of a basis point. In such a scenario, we believe Legrand would pass through these costs and adapt its cost base to offset the tariffs. Similarly, Rexel S.A. said that any price increase from its suppliers would be passed through to customers.

Indirect consequences--such as higher inflation and construction costs, reduced business confidence, and lower volumes--would be more relevant and could exacerbate the existing housing affordability crisis.  In Europe, the negative sentiment spreading across other European industries that are more affected by a potential trade war could impair household confidence and already weak economic growth.

We anticipate that large European building material companies can cope with the impact of U.S. tariffs.  This reflects their typically diversified operations and their adequate rating headroom. Based on our expectation that the direct effects from the tariffs will be limited or offset by the positive effects of megatrends, such as digitalization, we forecast that the rating headroom of large European building materials issuers will remain broadly unchanged.

We also think it is unlikely that moderate macroeconomic implications alone will pressure credit quality. Most European building materials in the 'B' rating category have operations concentrated in Europe and are thus more sensitive to a continuation of the weak construction cycle on the continent. This is because their financial leverage has already weakened, following the 2023-2024 volume drop, meaning that a prolonged business downturn, due to a deteriorating trade context, would likely increase downside risk.

Capital Goods

We anticipate that most of our rated European capital goods companies can withstand the impact of U.S. tariffs on imports.  This is because many rated European capital goods companies with significant revenues in the U.S. adopted a local-for-local production approach. This strategy is particularly prevalent among the larger and more diversified European companies that we rate in this sector. However, there is still some exposure, as most have developed supply chain networks across the North American Free Trade Agreement (NAFTA) region, and imports from Mexico and Canada are also likely exposed to U.S. tariffs.

These negative implications can be mitigated by leading market positions, the accompanying pricing power, and the flexible global production footprint that characterizes some larger European capital goods companies. In addition, we do not see any material disadvantage in their production and supplier networks, compared to their U.S.-based competitors. As a result, our outlooks are stable for large European capital goods companies such as ABB Ltd. (A/Stable/A-1), Siemens AG (AA-/Stable/A-1+), and Schneider Electric S.E. (A/Stable/A-1). By contrast, the credit quality of smaller and more leveraged capital goods companies with a high share of exports to the U.S. and a lower or negligible local production base in the country could come under pressure.

We anticipate that the end markets most exposed to the tariff risks are autos, consumer, construction, agriculture, and general engineering.  Disruptions in trading conditions, increasing costs, higher inflation, and changing market dynamics could alter consumer confidence. Businesses may also delay certain investments, affecting construction activity and new equipment purchases. Therefore, European capital goods companies exposed to these end markets, where demand is relatively discretionary and sensitive to business sentiment, could be challenged. The imposition of a 25% tariff on the auto sector could directly affect European capital goods companies with direct exposure to the sector and might indirectly affect them through decreased automotive production and investment delays.

We expect that companies will have some room to increase prices to mitigate the impact of the tariffs.  The ability to adjust pricing will depend on various factors, like market leadership, the uniqueness of products, and contractual frameworks. We expect companies with global leadership, like ABB, Siemens, and Schneider Electric, will be able to adjust pricing, as will some smaller companies with good niche positions. We also note that certain framework agreements include automatic price adjustments for tariffs (a result of the tariffs imposed under the previous Trump administration).

Furthermore, some capital goods companies operate through distribution partners in the U.S. under Ex Works terms, which technically limits their exposure to tariff-related risks because the responsibility for import duties falls on the distributor. However, we do not expect that the full burden will be absorbed by distribution partners and expect that companies will share a portion of the tariff-related costs, either through pricing adjustments, margin concessions, or other commercial arrangements.

We consider the strategic decision to onshore production to the U.S. is unlikely to be implemented fully in the short term.  We anticipate companies will first utilize their global production and supplier networks to mitigate or avoid import tariffs. Then, if the cost benefits of expanding the production footprint in the U.S. outweigh longer-term costs from import tariffs, we would expect new plants to be set up. This would require significant investment and could take several years. The construction of additional plants would be a positive for the capital goods sector because it requires plant engineering, machinery, and automation equipment.

Supply chain disruptions and longer lead times could weigh on free operating cash flow (FOCF) generation.  Companies might need to reorganize their supply chains, build safety stock, or face component shortages. This could result from longer lead times in shipping goods to the U.S. due to increased border controls and longer customs processes. Working capital requirements are likely to be higher than expected due to the build-up of safety stock.

Chemicals

We believe the short-term direct effects from U.S. tariffs on European chemical companies will be partially mitigated by their local production footprint.  Many large rated European chemical companies, such as BASF SE, follow a "local-for-local" strategy and operate production hubs in the U.S., which minimizes their exposure to tariffs. These production facilities cover local demand directly, meaning the respective companies' reliance on imports is limited. That said, the competitive position of European companies exporting into the U.S. from other locations around the globe, now subject to tariffs, could deteriorate.

The indirect effects from tariffs will be more pronounced than the direct implications.  Tariffs could increase supply chain risks. Specialty chemical producers will be particularly affected if their U.S. production relies on imports from countries that are exposed to higher tariffs. Companies that depend on Chinese critical raw materials (like rare earths for catalysts or titanium dioxide for paints) could experience significant cost increases if tariffs disrupt flows. Finding alternative routes or suppliers in Southeast Asia or the Middle East might ease bottlenecks but would come with additional costs. If companies do not pass these costs on to customers, pressure on margins could rise.

Indirect demand destruction for key end-use products would be substantial in the chemical industry.  According to the European Chemical Industry Council (Cefic), about 60% of chemical demand in Europe hinges on downstream industries, such as automotive, machinery, and electronics, all of which are sectors with high U.S. export exposure. Furthermore, lower economic growth, which is one of the secondary effects of higher tariffs, could outweigh the primary effects on chemical companies and might dampen their near-term recovery prospects.

European fertilizer producers could initially benefit from higher global benchmark prices, despite their relatively modest exposure to the U.S. market.  Over the short term, tariffs will likely increase fertilizer prices in the U.S. Since fertilizers are traded globally, benchmark prices would also rise. Despite negative volume effects due to further pressure amid an already challenging outlook caused by soft commodity prices, an increase in benchmark prices would strengthen the revenues and profits of fertilizer producers that are exposed to export markets. However, it would also increase price volatility. Demand for fertilizers, particularly more discretionary potash, which is currently exempt from tariffs, could decrease. Over time, demand destruction could lead to a correction in prices, in turn strengthening affordability and fertilizer offtake.

Consumer Goods

Among the European consumer goods companies we rate, we expect alcoholic beverages and personal luxury goods companies will be most affected by U.S. tariffs.  On average, the U.S. accounts for about a quarter of those companies' total revenues, which creates downside risks resulting from the imposition of tariffs.

Across EMEA's four major, rated alcoholic beverages players, U.S. sales vary from less than 5% (Heineken, the world's No.2 brewer) to close to 34% (Diageo, the world's No.1 spirits manufacturer). Within the spirits sector, exposure varies by category, with Diageo notably exposed to the U.S. through its leading positions in tequila (about 11% of total sales). Pernod Ricard's U.S. exposure (about 19% of total sales) is largely through Irish Whiskey, vodka, and rum. Most spirits producers have little option to move manufacturing or bottling due to protected geographical origin and indications.

Increased tariffs on personal luxury items will impact the recovery prospects for European luxury goods companies.  Within the personal luxury goods industry, the top three global rated players--LVMH Moet Hennessy Louis Vuitton S.E. (LVMH), Kering S.A., and Compagnie Financiere Richemont S.A.--have about 20%-25% sales exposure to the U.S. Given the continued subdued Chinese consumer demand for luxury goods, we note that the U.S. market continues to grow in importance.

Given the industry's European manufacturing footprint, pricing appears the most likely mitigant to the effect of tariffs, including because the companies cater to wealthy customers who tend to be less price sensitive. The market for aspirational customers will be most impacted as it reduces spending on luxury goods in favor of alternatives, such as travel or other leisure experiences.

Rating headroom varies across subsectors and companies.  Within alcoholic beverages, beer producers Anheuser-Busch InBev (ABI) and Heineken benefit from significant headroom under their credit metrics and are shielded from the tariffs' effects by a significant local manufacturing footprint for ABI, and limited exposure to the U.S. for Heineken. Our forecasts of Diageo's credit metrics signal sufficient headroom in the coming two years, while Pernod Ricard S.A. has slightly less headroom due to significant headwinds in China.

Among rated luxury goods companies, LVMH's outlook is stable, and it benefits from solid business positioning founded on its very diverse portfolio of brands. Kering's credit quality appears more exposed to the imposition of tariffs, especially in the context of its ongoing attempts to turn around Gucci, its key brand, and given its elevated leverage (compared to its rated peers within the sector). Richemont has the greatest amount of headroom under its current credit metrics to accommodate the impact of tariffs due to its attractive brands, premium pricing power on hard luxury goods, and because it has no financial debt.

We consider European consumer goods and retail companies in other sub-sectors are less directly affected by U.S. tariffs.  This is due to their generally diversified revenue streams, as well as their sourcing and manufacturing capabilities.

Very few of our rated European speculative-grade consumer goods companies have material exposure to the U.S. and are thus unlikely to see their creditworthiness materially affected by the tariffs. We expect most of the larger investment-grade companies in our rated portfolio to have the relevant operational and financial wherewithal to offset most of the negative effects of tariffs, though we anticipate weaker demand and more negative consumer sentiment.

Commodities producers (Oil and gas, miners, metals)

Rated metals producers (especially aluminum and steel) are comparatively much more exposed to tariffs than most oil and gas companies and mining companies.  U.S. imports of oil, refined products, and gas are exempt from the newly announced tariffs. The U.S. has been a crude oil and petroleum net exporter since 2020, though it maintains material gross imports. The global and U.S. producing and refining operations may nonetheless experience supply chain issues, inefficiencies, and delays, especially to construction and development activities. Petrochemical businesses are likely to be more exposed to tariffs, even if they are less materially affected at the group level.

The biggest risk for European majors is a global economic slowdown provoked by tariffs, with weaker oil demand and prices as a potential consequence. Similarly, beyond economic impacts, we do not consider the large global miners (BHP Group, Rio Tinto, Glencore, and Anglo American) to be particularly exposed to tariffs as their U.S. revenues essentially come from local mining operations. Still, equipment (including machinery) and chemicals costs related to the extraction and processing of minerals could rise as not all of those elements are sourced locally.

European steel and aluminum producers face greater risks, despite tariff increases in 2018 and 2019 that encouraged a shift to a "local-for-local" model to minimize impacts.  Most ArcelorMittal steel products sold in the U.S. are produced locally, including through the value chain. Though some very high value-added products manufactured by ArcelorMittal's Canadian operations are exported to the U.S., notably for the U.S. automobile industry. At ArcelorMittal's fourth-quarter results presentation in February 2025, management drew a parallel with the first round of tariffs imposed in 2018 and 2019, when the cost impact was estimated at $100 million per quarter. We also note that, due to overcapacity in the sector, the imposition of tariffs could have a positive impact on prices, which could increase revenues, all else being equal.

For the most value-added steel products, we consider that both ArcelorMittal and Swedish producer SSAB have significant capacity to pass through costs generated by tariffs.

Even if tariffs, in isolation, are manageable for ArcelorMittal and SSAB, they come at a difficult moment for European steel makers, which face a combination of low prices due to oversupply (notably from China), huge sustainability-related capital expenditure (to modernize blast furnaces and/or convert them into electric arc furnaces), and, for some players, increasing cost pressures, notably relating to energy.

On the aluminum side, most U.S. imports come from Canada, and to a lesser extent from China, Mexico, the United Arab Emirates, and South Korea.  Imports from Europe are comparatively small, even though some European companies sell products in the U.S. market through Canadian subsidiaries (due to the cost competitiveness of electricity prices in Canada). The largest European producer, Norsk Hydro, predominantly serves its U.S. customers from local production sites.

Norsk Hydro's U.S. extrusions business relies on domestically sourced raw materials. The group also has extrusion plants in Mexico and Canada, which may be affected by tariffs, but higher London Metal Exchange (LME) prices and premiums have historically been passed on to customers. Similar to the case for steel makers, the direct impact of tariffs on Europe's rated aluminum players appears manageable due to their operating models, yet the greater risk may come from demand destruction and weaker volumes in some key end-markets, such as the automotive sector, which is also subject to heavy tariffs.

Pharmaceuticals

The tariff on pharmaceutical products has not yet been announced. Our analysis uses a 20% tariff, in line with the eurozone global tariff, but we will reevaluate our findings in the event of a very different rate. Assuming a 20% tariff, we expect the impact on European pharmaceutical companies will be very limited.  Firstly, the life-saving nature and low substitutability of some pharmaceuticals will likely prompt U.S. authorities not to discourage their imports. Additionally, we expect access to innovative medicines and control of research and development (R&D) will remain a priority for the U.S.

Predicting tariffs' effects on the sector can be complex as active pharmaceutical ingredients (APIs) often get produced in one country, filled in another, and afterwards re-imported to the originator country. All big European pharmaceutical groups have a full value chain in the U.S., with usually several manufacturing sites and billions of R&D expensed in the U.S. We believe that considerations regarding the location of R&D could be an important factor for the European pharmaceutical industry, especially because China is increasingly successful in filing new molecules.

If tariffs are imposed, we believe European rated pharmaceutical companies' strong margins can absorb the effects.  Tariffs will be computed on the cost of goods sold and the industry will be protected by the robustness of its gross margins. Assuming a gross margin of 80% (this is only applicable to the top portion of the life cycle of each innovative drug--after full commercialization and before the decline close to the loss of exclusion date) and taxation of 25%, the impact would only reach $50 million for a turnover of $1 billion invoiced from the EU to the U.S. We believe this is manageable. We also think demand is relatively inelastic, especially for life-saving drugs.

Shipping

The global shipping industry faces the indirect impact of U.S. tariffs applied on goods in Europe and many other countries. It could also be impacted by proposed additional U.S. port fees targeting Chinese-operated, built, or ordered ships.  We anticipate disruption to global freight, trade flows, and supply chains against an industry backdrop of already heightened geopolitical and macroeconomic uncertainty.

In our view, key risks include:

Increased volatility in maritime freight rates.  In the near term, increased disruption, accelerating imports to mitigate tariff effects, and reconfiguration of route networks typically boost rates; but, over the longer term, rates could become more volatile or fall if demand drops.

Reduced trade volumes.  As goods become relatively more expensive for U.S. consumers, and as any retaliatory tariffs placed on U.S. goods have a similar impact elsewhere, there is a risk of a reduction in global trade volumes.

Shifting trade patterns.  To avoid tariffs and maintain supply chain resilience, many companies may adapt their export and sourcing strategies, which could slow down supply chains and increase costs. U.S. tariffs on other countries may mean goods will be redirected to Europe, which could increase market competition in the region.

We think the container shipping segment will be most impacted by tariffs, particularly along major trade routes  (trans-Pacific and Asia-Europe) where rates could become more volatile or drop over the longer term. Other routes may become busier, and rates could increase. Containership supply growth is already forecast to exceed demand growth over the next few years, and additional pressure on freight rates would be unwelcome for the industry. We note the freight rate outcomes are extremely sensitive to events in the Red Sea, which are currently supporting rates. For example, shipping company BIMCO forecasts supply growth of 6.2% in 2025, and demand contraction of 1%-2% if routings return to normal in the Red Sea, versus growth of 2%-3% if they do not. However, we believe that most of our rated container liners will be able to pass higher costs on to their customers, at least for the most part.

Global import tariffs of 25% have already been imposed on all steel and aluminum products, which will directly affect bulk carriers that transport raw materials such as iron ore (used to make steel) and bauxite (used to make aluminum). We think the tanker segment will be more shielded from U.S. tariffs, but the outlook remains highly uncertain.

The U.S. administration is also proposing significant port charges for Chinese-operated, built, or ordered ships entering U.S. ports (of up to $3.5 million per port call).  We expect about 45% of all U.S. port calls will be affected, with the container shipping segment being the hardest hit; Clarksons Research estimates 80%-85% of container ship calls would fall within the scope of these potential new regulations. This could lead to a surge in spot rates, substantial changes to container liner service patterns to avoid fees, increased congestion at U.S. ports, and changes to competitive dynamics. Nevertheless, we assume there would be a strong ability to pass on these proposed fees (via surcharges) to customers and ultimately the end consumer.

Technology

We believe the tariffs will have a limited impact on the credit quality of our rated European technology hardware issuers.  While all European technology issuers are somewhat exposed to these tariffs, directly or indirectly, we see significant mitigants that will help contain the effects. Semiconductors have been exempted from the tariffs, though the scope of that exemption is not yet fully clear and comments by the administration suggest that tariffs on the sector might still come at a later stage. That said, as our rated European semiconductors have meaningful exposure to the automotive sector, which we expect could add additional pressure on toplines and margins.

Our rated universe consists of 10 entities across various hardware subsegments, all of which have direct or indirect sales to the U.S., ranging from 5% to 40% of total sales.  A common characteristic of these entities is their involvement in complex global supply chains, which exposes them to volume risk if a decline in demand for final products effects component suppliers up the value chain. Furthermore, these companies may be affected by decisions made by their suppliers or customers, such as the passing of tariff costs through the supply chain or shifts in manufacturing locations. Lastly, there is a risk that an intensified trade war could lead to a global economic downturn that weighs on the technology hardware sector, which we consider to be relatively sensitive to global economic cycles.

However, we see key mitigants for technology hardware makers. First, their diversified geographical revenue streams and end markets mean targeted tariffs in specific regions or sectors will likely have a limited effect. Second, they have developed flexible, geographically diversified supply chains with strong optionality over time, utilizing both outsourced and in-house production. And with outsourcing, many companies have adopted at least dual sourcing. In some cases, there is no production in any of the markets impacted by increased tariffs, while companies that manufacture in-house generally have the capacity to produce in multiple locations, and many have a manufacturing footprint in the U.S.

The subsector with the largest revenue exposure to the U.S. is telecom equipment vendors,  specifically Ericsson (which made 40% of sales in the U.S. in 2024) and Nokia (24% in 2024, but expected to increase following the Infinera acquisition). These two companies have a dominant market position in the U.S. mobile equipment market. With key competitor Huawei restricted from deployment in mobile networks in the U.S., we believe the substitution risk is low, which enhances their ability to pass through any potential tariff impacts. Furthermore, a large part of their sales consists of software and services rather than hardware, which is less likely to be impacted by the proposed tariffs.

Semiconductors is the subsector with the largest exposure to the 25% tariff on automotives.  All of our rated European semiconductor issuers have a significant exposure to the automotive end market: Infineon (56% of sales in 2024), ams-Osram (52% of sales in 2024) and STMicro (46% in 2024). In our view, the tariff could have a material impact on the demand for and production of European automotives, leading to a lower demand for auto-related semiconductors. This could delay the recovery of topline growth for the automotive semiconductor segment, which in recent quarters has been exposed to inventory corrections and stagnating electrification in Europe and the U.S.

Although we do not expect any significant effect on credit quality, we note that the proposed tariff is likely to add additional pressure to revenues and margins. That said, the semiconductor companies' exposure to the U.S. automotive sector is relatively small compared to the Chinese market. Furthermore, we view all rated entities as having flexible and diversified supply chains, although we note that STM does not currently have manufacturing capability in the U.S.

Related Research

• U.S. Tariffs Aren't the Main Problem for European Chemical Companies, March 6, 2025
• Auto Industry Buckles Up For Trump's Proposed Tariffs On Car Imports, Nov. 29,2024