In early trading on Monday morning, the European carbon market was trading significantly lower, tracking massive losses on the international stock markets, following Trump’s commercial war. Meanwhile, the EUAs are moving away from its traditional link to the gas market. 

The price for carbon dropped briefly almost €2 below Friday’s close while the TTF front month responded with higher prices to colder weather forecasts. Meanwhile, stock markets in the region were trading lower  with automakers being hit the hardest, as the industry is extremely vulnerable to trade duties.

On Saturday, President Trump announced new tariffs on Mexico, Canada and China, sparking retaliation from all three countries. As a result, the Canadian dollar sank to its lowest since 2003 while the dollar is at its highest in more than two years. Europe also felt the economic pain of US tariffs, as many European carmakers have been establishing assembly plants in Mexico to supply vehicles for the US market. 

“European stocks tumbled as investors braced for the region to be the next target of US President Donald Trump’s trade tariffs” writes Bloomberg referring to Trump’s new threats to impose new tariffs on the European Union. “It will definitely happen with the European Union. I wouldn’t say there’s a timeline but it’s going to be pretty soon” he told reporters on Sunday night. 

While Trump is determined to use tariffs as a weapon against US’s largest trading partners, analysts warn that many economies, including the US, could be negatively affected. “Economically speaking, escalating trade tensions are a lose-lose situation for all countries involved,” said ING. The same concerns were expressed by a EU Commission spokesperson, quoted by CNBC: “Tariffs create unnecessary economic disruption and drive inflation. They are hurtful to all sides.”

It is too early to anticipate how potential US tariffs imposed on the European Union may impact the European carbon price. However, it is fair to say some traders may seek refuge in safe assets while most markets brace for increased volatility.