European Economy: Confirmation of the Impact of US Alternative Tariffs

■ Economic indicators continue to show moderate expansion in the Eurozone economy and a continued slowdown in inflation.  

■ The short-term impact of US alternative tariffs on the economy is relatively small, but if the euro appreciates, the downside risk to prices will increase. 
 
It is projected that by 2026, the Eurozone economy will experience moderate expansion in economic activity, while the inflation rate will slow to slightly below the European Central Bank's (ECB) 2% price target. The PMI data released on the 20th shows that the trend is largely in line with this path. The composite index (51.9, up 0.6 percentage points from the previous month) continued to rise, remaining above the 50-point threshold for 14 consecutive months. Both manufacturing (50.8, up 1.3 percentage points from the previous month) and services (51.8, up 0.2 percentage points from the previous month) have rebounded, with manufacturing in particular entering expansion territory for the first time since October 2025. The industry gap with the previously leading services sector is narrowing. Regarding price indices, input prices remain high, while sales prices have declined. Influenced by factors such as increased competition within the region, downward pressure on prices continues, consistent with the prospect of a slowdown in inflation. Looking at individual countries, Germany's composite index (53.1, up 1.0 percentage point from the previous month) rose. Among the sub-indices of the manufacturing index, orders, employment, and expectations all showed widespread improvement, indicating that the driving effect of fiscal spending on industry is beginning to emerge. The German manufacturing orders index for November, released on the 8th (up 7.8% month-on-month), has risen sharply for four consecutive months, driven by increased domestic orders. Even excluding large orders (such as aircraft), it still rose 0.9% month-on-month, continuing its positive growth trend. 
 
Against this backdrop, after the US Supreme Court ruled on the 20th that tariffs implemented under the International Emergency Economic Powers Act (IEEPA) were unconstitutional, the Trump administration decided to introduce a 15% alternative tariff. This is not expected to significantly change the tariff level on the European Union (EU), and therefore is unlikely to have a significant impact on the European economy in the short term. The new 15% tariff rate set under Section 122 of the Trade Act is the same as the 15% level agreed upon between the US and the EU, and exemptions for pharmaceuticals, aircraft, automobiles, and trucks will continue to apply. Furthermore, the sub-tariffs implemented under Section 232 of the Trade Act (such as those on steel and aluminum) are unlikely to change in principle, and the possibility of a significant escalation in tensions between the EU and the US in the short term is low. 
 
For the EU, the focus is on how the US tariff regime will evolve after 150 days. A 15% tariff, if applied for more than 150 days, requires approval from the US Congress. Additionally, if alternative tariff measures are adopted through Sections 201, 232, and 301 of the Trade Act, complex investigations are required before their implementation. As the 150-day deadline approaches, the market may see renewed demand and a subsequent rebound due to expectations regarding the future tariff regime. At the same time, the euro's appreciation trend may strengthen again due to increased uncertainty surrounding US policy. Currently, the European Central Bank maintains a cautious attitude towards policy adjustments, but if the euro's appreciation puts downward pressure on inflation, it may prompt the ECB to further cut interest rates.