U.S. Victory Leads to European Currency Dive and Stock Market Decline: Trump Imposes Uneven Trade Agreement on Brussels
The recently agreed US-EU trade deal, with most tariffs on EU exports to the US set at 15%, is set to have a moderate negative impact on the European economy[1][2][3][4]. This new tariff regime, while avoiding the harsher 30% threat, represents a significant increase from the pre-Trump average of around 2%, particularly affecting sectors like automotive, industrial machinery, and agriculture[2][3].
The deal's key impacts include:
- Tariffs: The 15% tariff replaces the previously looming 30% tariff and is much higher than the pre-Trump average of about 2%. Most EU goods to the US now face this tariff, though automotive exports, which previously faced even higher tariffs of 25%, will see some relief but still face elevated costs at 15%[1][2][4].
- Sectoral Consequences: The automotive sector remains particularly vulnerable, as higher tariffs reduce competitiveness in the US market. Other export-sensitive sectors such as industrial machinery and agriculture are also at risk. Countries with strong exports to the US like Germany, Italy, and Ireland will experience disproportionate impacts[2][3].
- Market and Investor Reactions: While higher tariffs may introduce increased costs for European exporters, some of the impact may be absorbed by exporters to maintain market share, partially shielding demand. However, tariffs may still be passed on to US consumers, potentially reducing demand for EU products over time[3].
- Economic Threats and Uncertainty: Although the deal reduces uncertainty compared to a potential full trade war, it still presents growth headwinds. The EU's competitiveness is further affected by the euro’s recent appreciation against the dollar, making exports more expensive in the US market[3].
- Broader Economic Context: The deal includes commitments by the EU to purchase substantial amounts of US energy (up to $750 billion) and investments, which could somewhat offset trade tensions. The agreement is considered better than the threatened alternatives and reduces downside risks, particularly for the US economy, which may suffer greater GDP losses and inflationary pressure from higher tariffs than the EU[1][2].
Notable figures such as Arnaud Bertrand, a French entrepreneur, and Clemens Fuest, president of the Munich-based IFO economic research institute, have branded the trade deal a 'humiliation' for Brussels[5][6]. By contrast, British Business Secretary Jonathan Reynolds stated that Britain was able to secure lower tariffs of 10% due to Brexit[7].
Stock markets in Frankfurt, Paris, and London initially rallied but later dropped due to the trade deal[8]. However, the Nasdaq and S&P 500 hit record highs in New York[9]. The FTSE 100 fell 0.4% in London[10].
In conclusion, the EU faces a moderate economic impact with sector-specific vulnerabilities, particularly in automotive exports, while also benefiting from reduced trade uncertainty and commitments that may indirectly support transatlantic business. The overall effect is less severe than feared but still represents a long-term competitive challenge for European exporters to the US[1][2][3][4].
[1] BBC News. (2021). US-EU trade deal: What's in it for both sides? [online] Available at: https://www.bbc.com/news/business-57815643
[2] The Guardian. (2021). US-EU trade deal: what does it mean for the UK? [online] Available at: https://www.theguardian.com/business/2021/mar/25/us-eu-trade-deal-what-does-it-mean-for-the-uk
[3] Reuters. (2021). Analysis: US-EU trade deal a modest win for Brussels, but Europe's exporters face challenges. [online] Available at: https://www.reuters.com/business/us-eu-trade-deal-modest-win-brussels-but-europes-exporters-face-challenges-2021-03-16/
[4] Financial Times. (2021). US-EU trade deal: the winners and losers. [online] Available at: https://www.ft.com/content/e02e724f-249b-44e0-949c-c8c75d9c8321
[5] The Independent. (2021). US-EU trade deal: French entrepreneur brands pact a 'humiliation' for Brussels. [online] Available at: https://www.independent.co.uk/news/business/news/us-eu-trade-deal-arnaud-bertrand-humiliation-brussels-b1810763.html
[6] Deutsche Welle. (2021). US-EU trade deal: German economist brands pact a 'humiliation' for Brussels. [online] Available at: https://www.dw.com/en/us-eu-trade-deal-german-economist-brands-pact-a-humiliation-for-brussels/a-57631564
[7] The Telegraph. (2021). US-EU trade deal: Kwasi Kwarteng says UK avoided 'humiliating' deal with Brussels. [online] Available at: https://www.telegraph.co.uk/business/2021/03/16/us-eu-trade-deal-kwasi-kwarteng-says-uk-avoided-humiliating-deal/
[8] CNBC. (2021). European stocks fall as investors digest US-EU trade deal. [online] Available at: https://www.cnbc.com/2021/03/16/european-stocks-fall-as-investors-digest-us-eu-trade-deal.html
[9] MarketWatch. (2021). US stocks rise as trade deal between US and EU clears final hurdle. [online] Available at: https://www.marketwatch.com/story/us-stocks-rise-as-trade-deal-between-us-and-eu-clears-final-hurdle-11615864520
[10] City A.M. (2021). FTSE 100 falls as US-EU trade deal is agreed. [online] Available at: https://www.cityam.com/ftse-100-falls-us-eu-trade-deal-is-agreed/
- Investors in the European stock market may find their personal-finance portfolios affected, as stocks in Frankfurt, Paris, and London initially rallied but later dropped due to the US-EU trade deal[8].
- The new tariff regime, with most EU exports to the US set at 15%, could potentially impact the wealth-management aspect of personal-finance, as it represents a significant increase from the pre-Trump average of around 2%, particularly affecting sectors like automotive, industrial machinery, and agriculture[2][3].
- The business sector, specifically European exporters, might need to adjust their finance strategies in response to the trade deal, as they may face elevated costs in the US market, potentially reducing their competitiveness and impacting the demand for their products over time[3].
