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European Equities Lower On New Trump Tariff Threat To EU

Apr 9 2019, 06:50 PM (BDT) | Orbex.com

If there is one word that describes Donald Trump best (and no, it’s not the one you’re thinking of!) it has to be “unpredictable”.

Throughout his campaign and his time as president, Trump has constantly surprised both politicians, pundits and markets alike. The latest headlines surrounding the 45th President of the United States, prove that this is still the case.

Trump’s Focus Shifts

In the wake of the year-long trade war between the US and China which rattled global markets last year and caused a nosedive in global growth, traders warmly welcomed news of a truce between the US and China. With negotiations continuing and a deal looking likely, price action in risk assets reflects the shared sense of relief among traders.

However, traders were greeted today with news that Trump is now threatening to apply further tariffs to EU goods. The Trump administration has identified a list of roughly $11 billion EU imports to the US which could come under tariff.

The administration claims that this is a response to the harm being caused as a result of the EU’s subsidies to Airbus SE, Boeing’s main rival.

Wide Range of Goods Targeted

The list, issued by the US Trade Representative’s office covers a wide range of goods including jetliners, passenger helicopters, wine, cheese, ski-suits, and motorcycles.

In a statement released yesterday evening, the USTR said that under Section 301 of the Trade Act of 1974it will begin a process to “identify products of the EU to which additional duties may be applied until the EU removes those subsidies.” It claims these have “repeatedly” caused “adverse effects to the United States”.

WTO Rule Against Airbus

News of the tariffs comes in the wake of the World Trade Organisation ruling that Airbus had received illegal funding for its A380 and AS50 models.

This had negatively impacted Boeing’s sales. The tariffs the Trump administration is threatening will reportedly only become active if the WTO approves the move this summer.

US/EU Tensions Growing

The current levy being discussed is minor compared to the current $360 billion worth of Chinese goods under tariff. Plus, a similar amount of US goods are under Chinese tariff. That being said, this does mark a significant escalation in the standoff between the EU and the US.

Timing wise, the move also coincides with the EU being in the final rounds of crucial negotiating the terms. These will determine the terms under which the European Commission will negotiate with Trump on industrial tariffs. And it’s highly likely that this will complicate those talks.

Commenting on the situation, Robert Lighthizer, the US Trade Representative said:

“Our ultimate goal is to reach an agreement with the EU to end all WTO-inconsistent subsidies to large civil aircraft…When the EU ends these harmful subsidies, the additional US duties imposed in response can be lifted.

Boeing Statement

In response to the news, Boeing issued a statement. The company claimed that it “supports the US trade representative and his team in their ongoing efforts to level the playing field in the global aircraft marketplace.”

The market now waits to hear the outcome of the WTO’s ruling this summer. This will determine whether Trump will press ahead with the tariffs.

Technical Perspective

GER30

GER30 traded lower this morning following the news. Bigger picture price continues to grind higher within the bullish channel which has framed price action this year. For now, price is hemmed in along the underside of the resistance trend line. Any retest of broken prior highs at 11725.6 should find support, the channel bottom providing deeper support. 12117.3 is the next key overhead level, with longer-term bearish trend line resistance above that.

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