New Tariff War? US vs EU and UK

Essential Insights 

• The U.S. is initiating tariffs on $3.1 billion worth of exports from France, Germany, Spain, and the U.K.

• U.S. Trade Representatives have targeted European products such as olives, beer, gin, and trucks, while increasing duties on products including aircraft, cheese, and yoghurt.

• If these tarrifs are deployed, it runs a real risk of damaging Eurozone growth, especially with businesses already suffering from supply chain issues and a drastically lower consumer activity.

Where has this come from ? 

The new tariff plan targeting EU good is a new development in an existing dispute between the US and European aerospace industry, where the US imposed $7.5 billion in tariffs on EU goods following a dispute centred around illegal activities from European Airbus, achieved through subsidiaries, allowing Airbus to achieve an ‘unfair competitive advantage over American competitor Boeing’. 

Why is this an issue ? 

This is clearly as issue as small retailers will be hit especially hard whom are already under pressure due to considerable less consumer demand ( as a result of the virus). It is also said that the Tariffs will create an unfair advantage for US ‘copy companies’, products that have a reputable status for quality due to geographical locations often fetch a premium price, this price will have to be pushed further to compensate for tariff costs thus allowing US copy companies to gain an unfair advantage via cheaper prices. 

Europe Strikes Back 

In response to this, European trade representatives have said they will not be settling and will move to reject the proposal. In fact, Europe have accused Boeing of doing the same thing Airbus was found guilty of doing (the irony) , to which the WTO has announced a parallel investigation into. If accused, the EU will be able to impose tarrifs equal to the 15-25% the US imposed on EU goods following the Airbus dispute and consequential ruling. 

What does this mean for you ?

Given that tensions are already flaring up (once again) between the US and China, over illegal Chinese surveillance on US companies and China not committing to purchasing US goods as agreed upon in phase one of the US-China trade deal, this new spat only throws another spanner in the risk-off environment, especially if Europe respond aggressively. It is likely that due to the risk-off themes, markets will sway on the defensive side of things, with risk assets such as Risk FX, Equities and commodities suffering and safe havens remaining supported.