Investing.com -- The latest round of U.S. tariffs is hitting Europe and China harder than anticipated, with Barclays strategists cautioning that the scale of duties and ongoing policy uncertainty could markedly increase the risk of a recession.
The announced tariffs were “more hawkish than expected,” strategists led by Emmanuel Cau said, particularly for European and Chinese exports.
The U.S. has imposed a 20% average tariff on EU goods—double what Barclays economists had initially assumed—and cumulative tariffs on Chinese exports could reach as high as 54%.
Barclays notes that while some product exemptions and hints of potential negotiations offer a glimmer of hope, “high tariffs and lingering uncertainty raise recession risk.”
The escalation could dampen the global outlook, with growth forecasts now facing increased downside.
The new trade environment also presents risks to corporate earnings. Barclays had already projected European earnings per share (EPS) growth of just 4% for 2025, below the consensus estimate of 6%, and now sees further downside.
“A c.20% tariffs would be a mid-high single digit drag on EPS growth,” the analysts said. Moreover, earnings for 2025 may now come in flat or slightly negative, before recovering in 2026.
Equities have partially priced in tariff-related concerns, but “less so” for the recession risks, strategists argue.
The S&P 500 has declined 8% from its peak, suggesting around 25% of a recession is priced in, but the Euro Stoxx 50 is still up 8% year-to-date. That means the European index “may have more catch-up to the downside if a recession becomes reality,” Cau and his team noted.
“Medium term, we believe that Germany’s fiscal policy stimulus should provide a positive offset and help Europe to weather the tariffs storm, while more aggressive ECB cuts may be coming too,” they added.
Sectors with high exposure to global trade and China—such as autos and luxury—have already underperformed sharply, while defensives like telecoms, utilities, and REITs have held up better.
Banks have led performance so far in 2025, but Barclays warns that rising recession fears and rate cut expectations could trigger profit-taking in the sector.