A deal on trade?
On Sunday, a deal was agreed between the EU and US on trade. This has been presented as both sides seeking to avoid the uncertainty of the tariff deadline approaching this Friday. However, a deal in the context of the EU is never quite so simple. An audience with Ursula von der Leyen in Scotland over the weekend appears to be the meeting that has pushed the deal over the line. As the President of the European Commission, Ursula von der Leyen is the right person to be negotiating such a deal. However, she will not be the only person required to commit the deal to law.
Therefore, there still remains a great degree of uncertainty ahead as member states ratify elements of the deal. In particular, outside of reciprocal 15% tariffs on goods other than steel, aluminium and pharmaceuticals, those who have seen the deal will note the investment requirements that disproportionately affect the EU. The European commission itself cannot make such investments and therefore this deal will rely upon individual member states’ cooperation to achieve those investment commitments. The deal will also require ratification by the EU Parliament so considering this deal signed, sealed and delivered is an overstatement. There is a risk therefore that it may not end up being the ‘huge deal’ that the Commission President has claimed.
15% reciprocal tariffs, leaving aside the lack of agreement on steel, aluminium and pharmaceuticals, leaves transatlantic trade significantly more vulnerable than it has been in previous years. A 15% reciprocal tariff means that the US stands to achieve approximately $500 billion in tax revenue from EU imports. As tariffs are reciprocal a not so dissimilar revenue from US imports to the EU will also be collected. Tariffs will make transatlantic trade less efficient and create a headwind to growth for both regions. Risk may well be perceived to be lower as a result of the deal however, EURUSD’s strong and downward trajectory yesterday reflects the uncertainty and inequity of this deal from the European perspective.
Discussion and Analysis by Charles Porter
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