(Reuters) -U.S. President Donald Trump announced on Saturday a 30% tariff rate for goods imported from the European Union and Mexico, starting on August 1.
The EU had initially hoped to reach a comprehensive trade agreement with the U.S. for 27-country bloc, but until Trump’s social media post on Saturday it was unclear if it might get a letter announcing more tariffs or when an agreement might be finalized.
Earlier this week, Trump issued new tariff announcements for a number of countries, including Japan, South Korea, Canada and Brazil, as well as a 50% tariff on copper.
“There are still three weeks until August, 1 which is a lifetime in this sort of situation. Again, I think it’s all part of this ‘escalate to de-escalate’ strategy in terms of trying to bring people to the table and get some more concessions out of them.
In terms of the EU one specifically, I guess you could argue that the threat (from Trump) the other day was 50%.”
“The risk is whether the EU, because all of the reporting has been around the U.S.-EU deal is close, take this poorly and actually go: ‘OK, fine, well, we’re just going to throw in place some countermeasures’ and then things start to escalate once more, which I think really then starts to change the calculus away from, this is just a negotiating gambit and back towards Liberation Day.”
“Depending on what happens in the next 24 hours or so, I imagine that the knee-jerk move is euro-negative, eurozone asset-negative. And then, as calmer heads prevail, it comes back to the fact that, is it just a negotiating gambit?
“Certainly, I think that the initial reaction will be a case of, actually, this is pretty devastating if it does come into effect and we need to price, not necessarily the full probability of it coming into effect, but at least there needs to be a chance, discounted that an export-led economy to its main market has got a 30% tariff on it, and it’s just not going to be able to cope with that.”
“Traders spent much of the last week hedging against a broadening in the president’s tariff schedule, but at 30%, today’s action has likely topped expectations.
“Although rising tariffs remain a bigger threat to the US itself, it is fair to expect the euro and Mexican peso to come under renewed selling pressure at tomorrow’s Asia open.
“At some point soon, it will become clear that Trump’s protectionist agenda has not been appropriately discounted in currencies, in asset prices, or in measures of volatility. A moment of capitulation is coming, in financial markets, or in the White House itself.”
