The New Trade War: Trump's Tariffs and Europe's Response

Donald Trump's administration has implemented what is considered the most significant trade offensive in recent memory. Since taking office in January 2025, the administration has imposed a sweeping set of tariffs on the European Union. These include a 25% tariff on all steel and aluminum imports from the EU, effective March 12, 2025, followed by a 25% tariff imposed on all car imports, a move that heavily impacts Germany and other major European auto exporters. Additionally, as part of a broader "reciprocal tariff" strategy, Trump announced a 20% tariff on all EU imports set to begin April 9, though this was subsequently paused for 90 days, leaving a 10% baseline tariff in effect during ongoing negotiations.

The European Union has responded with proportionate and targeted counter-measures. The EU has approved tariffs on approximately €18 billion worth of US goods, including food, personal care products, textiles, and transportation equipment, with rates up to 25%. Additionally, previously suspended tariffs on American products such as motorcycles, bourbon, and jeans are set to be reinstated, bringing the total value of affected trade to around €26 billion, mirroring the impact of the US tariffs on European exports. The market impact has been substantial, with global and national indexes dropping across the board. Inflation indicators are rising across the eurozone, with manufacturing inputs experiencing the sharpest price increases. An expected decline in EU-U.S. trade and EU GDP growth is also anticipated.

However, the European tariffs pale in comparison with those applied to China. As of April 2025, the United States has imposed tariffs of up to 104% on Chinese imports, with some product categories, such as electronics and machinery, facing even higher rates. For example, the average effective tariff rate on Chinese goods entering the US is now estimated at 145%, though Trump has now stated that they will come down over time.

These U.S.–China trade tensions also have a direct effect on European companies. European businesses find themselves caught in a difficult position, facing pressure from multiple directions: their direct exports to the US are subject to tariffs, while their China-dependent supply chains experience simultaneous disruption. As a result, European companies have become collateral damage in America's trade conflicts, contributing to a significant rethinking and reconfiguration of global trade flows.

As investors, we recognise that these trading tensions are forcing European companies to reconsider supply chains that have been optimised over decades, creating significant opportunities for innovative startups offering solutions.

Impact on European Tech Startups

For European hardware startups, the tariff situation presents substantial challenges. After years of progress in rebuilding Europe's hardware innovation ecosystem, these trade barriers have created unexpected headwinds, effectively taxing these companies twice. Production costs are increased both on imported components and through taxes on their exports.

And while software startups initially appeared less vulnerable to immediate tariff impacts, several secondary effects are at play.

Especially for companies serving manufacturing, automotive, and industrial sectors, we expect customer acquisition costs to rise as sales cycles lengthen and conversion rates decline. Startups selling to these industries specifically are facing a customer group that has seen its margins tighten even further, and as a consequence, is reassessing its entire supply chain under these new trade conditions. New software is suddenly a lower priority.

Adding an additional level of pressure, heightened stock market volatility is delaying or derailing IPOs. Economic uncertainty is currently higher than it was during Covid, meaning exits are being deferred and liquidity will be harder to come by. Many funds will be forced to hold positions longer, while founders suffer in these more uncertain conditions. Overall, navigating trade barriers, currency swings, and regulatory uncertainty consumes time and resources, creating an especially tough situation for lean startup teams. Capital efficiency and runway management are becoming non-negotiable.

Despite these challenges, several bright spots remain on the horizon. As global companies seek to reduce exposure to U.S. trade risk, European startups, especially in sectors like AI, SaaS, and Fintech, are becoming increasingly attractive targets for acquisitions or partnerships. The challenging situation will push startups to establish dual-entity footprints in both Europe and the U.S. earlier in their development. Such strategic positioning not only de-risks future expansion but also enhances their resilience to macro volatility.

The silent winners in supply chain tech

Despite the industry-wide challenges, there are business models and companies that we expect to thrive as a consequence of the new, volatile trade environment. Specifically, we are seeing opportunity in three main segments:

Sourcing & Procurement

A significant opportunity exists in building what the Economist has termed "China+1" or even "China+3" supply networks. Startups facilitating connections to alternative manufacturing hubs are seeing strong growth. The era of single-sourcing from China is definitively over. European companies need reliable alternatives that don't over-expose them to either US or Chinese trade politics.

We expect sourcing platforms, such as Torg, Wonnda, Alpas, and others to see heightened inbound demand as manufacturers seek fast alternatives to existing platforms and suppliers. In parallel, B2B marketplaces with global coverage, such as our portfolio company Metycle, are in a prime position to manage changing demand and supply patterns, as well as accommodate new matches at a rapid pace.

Supply Chain Visibility

Supply chain visibility and traceability platforms, including Shippeo, Prewave, Tacto, Altana, TrusTrace, osapiens, Infyos, Circularise, and many more experienced their first major surge in adoption over the past few years, driven by climate regulations that mandated enhanced visibility over supply chains, with some going as far as product-specific levels. While some of these policies have seen delays, startups building for supply chain visibility will view this trade volatility as a new tailwind.

According to Maersk’s 2024 State of European Supply Chains survey, only 32% of European firms have visibility into their tier-two suppliers, and just 20% have visibility into tier-three suppliers. Managing rule of origin in this environment is a computational nightmare. Parts from China incorporated into companies’ systems might disqualify the entire machine from US markets, regardless of where final assembly occurs. Origin tracking is now becoming an immediate cost question, rather than a purely compliance topic, in order to reduce fines.

Customs Technology & Trade Compliance

Recent geopolitical shifts and constantly changing trade regulations, including both tariffs and climate & supply chain regulations have increased both the complexity and frequency of tariff code changes, requiring companies to constantly review and update their classifications to remain compliant. This administrative burden represents a clear opportunity for automation solutions.

Customs brokerage is currently a traditional business with a fragmented landscape, featuring many small brokers that rely on manual service work. With tariffs changing almost daily at the moment, human customs agents are struggling to keep up. This presents a ripe opportunity for new AI-based customs solutions. Having monitored customs as an attractive space for some time, we now see these market trends solidifying our conviction in this area.

Looking Forward

As European investors, we view these tariffs as both a challenge and an opportunity for the startup ecosystem. With details seemingly changing daily, the exact economic effects remain to be seen. Thus, the companies that will succeed are those that help enterprises navigate this new reality rather than simply hoping for a return to previous trade conditions, as well as those who focus on operational and capital efficiency in this volatile environment.

It’s a challenging yet exciting time for Supply Chain Tech, and we remain committed and excited about finding the best companies in this space. If this resonates with you, please get in touch.