European stocks surge 2.7% as EU offers zero-tariff deal but prepares for retaliation

Markets rebound amid trade war tensions, but EU warns it is ready to strike back

European stocks have surged, snapping a four-day losing streak on Tuesday as investors welcomed signs of a more diplomatic tone from Brussels, even as the threat of a trade war with the United States continued to loom.

The Stoxx 600 index closed 2.72% higher at 486.9 points, bouncing back from Monday’s sharp 4.5% fall—its lowest close since January 2024. The rally was led by insurance stocks (+4.08%), financial services (+3.89%), and travel companies (+3.85%), as sentiment lifted across global markets.

The rebound followed a bruising start to the week, in which stock indices across Europe and the US were hammered by fears over escalating US tariffs under President Donald Trump’s protectionist trade agenda. On Monday, Trump rejected a European Commission proposal for a zero-tariff pact on industrial goods and threatened to increase duties on Chinese imports by another 50%.

Despite this, hopes for de-escalation grew after European Commission President Ursula von der Leyen reaffirmed the bloc’s willingness to negotiate. “Europe is always ready for a good deal,” she said, reiterating the EU’s offer of a “zero-for-zero” tariff agreement on industrial goods.

Trade ministers meeting in Luxembourg on Monday agreed that avoiding escalation should be the bloc’s priority, though they also finalised plans for retaliatory tariffs targeting up to €26bn (US$28bn) worth of US imports.

EU Trade Commissioner Maroš Šefčovič confirmed the first round of duties will take effect on 15 April, with a second wave scheduled for 15 May, unless negotiations make progress. “While the EU remains open to and strongly prefers negotiations, we will not wait endlessly,” Šefčovič warned.

He added that the EU is “in the early stages” of talks with Washington, but noted that the US views tariffs not as a tactical step, but as a corrective measure, complicating discussions. The EU’s countermeasures will be calibrated after consultation with member states and stakeholders, balancing the economic impact across the bloc.

While the EU has so far resisted calls to invoke its Anti-Coercion Instrument (ACI)—a mechanism that could restrict US companies’ access to public contracts—Šefčovič made clear that further escalation remains on the table.

“We have a robust list ready,” he said. “But we still believe that sooner or later, we will sit down with the US and find a mutually acceptable solution.”

Not all member states are in favour of immediate retaliation. Irish Foreign Minister Simon Harris described the ACI as “very much the nuclear option,” while Dutch Trade Minister Reinette Klever warned against escalating too quickly: “We need to remain calm and respond in a way that de-escalates. The stock markets right now show what will happen if we escalate straightaway.”

Despite the EU’s cautious tone, Washington has already threatened further retaliation. Trump has floated a 200% tariff on EU alcoholic beverages, in response to Brussels’ proposed 50% duty on US bourbon—a move that has rattled French and Italian exporters.

Behind the scenes, the EU is also exploring collective strategies, such as aggregating demand for US liquefied natural gas (LNG) as part of a broader negotiation package.

Analysts warn that the bloc has less leverage in a tariffs war: the EU exported €532bn (US$582.1bn) worth of goods to the US in 2024, while importing just €334bn (US$366.2bn).

Still, markets took heart from the possibility of negotiation and some signs of dip-buying activity, especially in sectors hit hardest by previous declines. The positive momentum followed rallies in Asia-Pacific markets and US equities earlier in the day.

Yet, as Šefčovič admitted, the US administration appears intent on using tariffs to send “an ideological signal to markets.” Whether that signal leads to compromise—or further chaos—remains to be seen.