The financial cost of US tariffs on the European automotive industry has been illustrated by Volvo Group, which was forced to take a $1.2 billion impairment charge in the second quarter as tariffs undermined profitability.

With President Donald Trump's threat at the weekend to impose 30% tariffs on all European Union imports from Aug. 1, there is no letting up on the financial pressure facing the automotive industry.

“Due to import tariffs the company is currently unable to sell the Volvo ES90 profitably in the United States, while ES90 margins are also under pressure in Europe for the same reason,”Volvo told investors in a statement Monday.

The Swedish carmaker said the $1.2 billion write-down reflected adjustments in expected production volumes of its two latest electric car models following the tariffs and“rightsizing the assets to the known market realities.”An impairment charge is the writing down of the value of an asset to reflect its reduced worth.

The US imposed 25% tariffs on the steel and aluminum sectors in March and expanded that to include automobiles on April 3 and automobile parts on May 3, also set at 25%, up from 2.5%.

Then, last Saturday, Trump, frustrated at a perceived lack of progress on trade negotiations, threatened to impose 30% tariffs on all imports from the EU from Aug. 1.

The US is the largest market for Europe's automotive industry, comprising 23% of the EU's total car exports, according to data from the European Commission.

With such a significant market share, auto exports from the port of Antwerp-Bruges, a huge automotive hub in Europe that handled more than three million vehicles last year, have been particularly hard hit by the US tariffs.

There has been“a clear decline”in vehicle exports to the US via Antwerp since May as tariffs dragged down the numbers, the port noted in a statement this week on its first-half operations. In the first six months of the year, 15.9% fewer new cars and vans (76,089 units) and 31.5% fewer trucks and heavy vehicles (11,751 units) were exported.

Eurozone pushed to‘edge of recession’

The US tariffs will do no favors for Europe's economies. Research consultancy Oxford Economics noted in a report this week that the threat of 30% tariffs was an escalation of the trade war that will push the eurozone economy to the edge of recession, with growth stagnating over the coming quarters.

“Using our global economic model, we estimate that this could cut eurozone GDP growth by up to 0.3 percentage point annually over the next two years,”the report said.

The 30% tariff threat surprised EU officials who reportedly thought they were close to a preliminary agreement with the US. Brussels has subsequently dusted off plans to impose its own targeted retaliatory measures on US products should the tariffs be implemented, but it is still holding trade talks with Washington.

“The latest decision to delay its planned retaliatory measures until next month shows the EU still hopes to reach a deal before the Aug. 1 deadline,”the Oxford Economics report noted.

Oxford Economics found US tariffs were also raising uncertainty and damaging business confidence in the EU, and by extension corporate investment, a sentiment that was picked up in the latest S&P Global Germany Business Outlook survey.

“Businesses report concerns about disruption to both demand and supply chains from increased US trade tariffs and the wars in Ukraine and the Middle East, with the related uncertainty expected to limit business investment and growth,”Phil Smith, economics associate director at S&P Global Market Intelligence, said in his analysis of the survey results.

“The current geopolitical backdrop means that firms overall remain only cautiously optimistic about the outlook and are by no means fully loosening the purse strings, with growth forecasts and investment intentions still running below their respective pre-pandemic averages,”Smith added.

S&P Global is the parent company of the Journal of Commerce.