Europe's STOXX 600 logs biggest daily drop in 2025 as US tariffs rattle investors

European shares logged their biggest one-day drop in more than one month on Monday, with automakers leading declines as investors priced-in that U.S. President Donald Trump's latest tariffs could escalate into a broader trade war.

Over the weekend, Trump announced 25% trade duties on Canada and Mexico, along with a 10% levy on China. However, following preliminary negotiations, the U.S. president said on Monday new tariffs on Mexico would be paused for a month.

The tariffs, set to take effect at 0501 GMT on Tuesday, would affect $1.3 trillion of goods, or more than 40% of all U.S. imports.

Canada and Mexico announced immediate retaliatory levies, while China also announced countermeasures.

Trump also warned that tariffs on Europe will "definitely happen", but did not offer any clarity.

The export-heavy STOXX 600 index, fell 0.9%, receding from Friday's record close, with Germany's DAX, leading declines among regional markets.

"Germany is already in contraction at the end of last year and it's got some sort of political uncertainty as well. So when you combine those factors, together with potential tariffs from the U.S., it leaves Germany in the worst position," said Fiona Cincotta, senior market analyst at City Index.