EU Tariffs Talks In Focus
Concerns regarding the health of the global trade environment have intensified this week. On Wednesday, markets tumbled lower following an escalation in rhetoric from China.
Today, traders are reacting to news of complications in the US/EU trade talks. Earlier in May, President Trump announced that he would suspend planned auto-tariffs on EU cars for 180 days to allow for negotiations.
However, due to increasingly difficult situations in both the EU and the US, these talks are yet to show any signs of a positive outcome.
Ten Months & Still No Progress
It has now been ten months since Trump and Jean Claude first came to a truce. The truce intended to pave the way for trade negotiations to reduce industrial tariffs and dismantle regulatory tariffs.
However, talks have yet to take on any serious shape. EU leaders have been quick to point the finger at Trump, accusing the US president of being pre-occupied with Chinese trade negotiations. They also claim he is prioritizing delivering a quick deal with Japan to alleviate concerns among the US agricultural sector.
EU Politics Creating Distractions
However, political disruption within the EU is also creating difficulty. There is growing fragmentation among political parties and the increasing support for the far-right and eurosceptic parties. And the US views this as a threat to trade.
Furthermore, there is still significant uncertainty around Brexit. In fact, this has been heightened since the UK PM resigned from her post.
In addition, Russia has been further testing the parameters of EU security. All these factors are demanding more and more time and attention from EU leaders.
New European Commission Due In
The issue for the EU, however, is that if negotiations fail to produce a deal, Trump’s 180-day deadline will soon come around.
The timing of such tariffs would be incredibly difficult for Europe. This is because they are due to take effect just as the newly reformed European Commission takes over from Juncker’s European government which has been in power for five years now.
France & German’s Divergent Views
Furthermore, it seems that France and Germany, the two leading EU economies, have dueling ideas on how they wish to see the European economy progress.
France is looking to resist US demands to include agriculture in the trade talks. Incidentally, this is an area that Trump is ardently pursuing. However, Germany, as the bloc’s biggest exporter of cars, is primarily worried about Trump’s autos tariffs.
EU Threatens Retaliation
EU leaders have issued a warning to the US. If they apply vehicle tariffs at the end of the 180-day deadline, the move will be met with retaliation, just as the steel and aluminum tariffs were last year. The EU has identified around $20 billion of US goods that can be levied if Trump presses ahead with the tariffs.
After breaking down through the rising trend line support of the bullish channel which has framed price action since December last year, the DAX has found support at the 11846.9 structural level for now. This has been a key structural level over recent months. While above here, we could yet see a further move higher though bulls would need to see price quickly back above the 12040.1 level. Below here, the next key level is the 11654.9 level, a break of which would pave the way for a much deeper move lower.