The US-UK trade deal doesn't look so bad after all – Commerzbank
|As if to keep us on our toes on an otherwise uneventful Friday, Donald Trump followed up his threat of tariffs on smartphones by announcing that 50% tariffs would be imposed on EU goods from 1 June, due to stalled negotiations with the European Union. As usual, he justified this decision by citing discrimination by the EU. This announcement did not last very long. Last night, it was reported that, following a 'very nice' conversation between Trump and the President of the European Commission, the tariffs had been postponed until 9 July to allow time for a deal to be reached, Commerzbank's FX analyst Michael Pfister notes.
Trade war fears return as tariff deadline looms
"The postponement of the higher reciprocal tariffs by 90 days, and the apparently successful negotiations with the United Kingdom and China, have once again solidified the view in the market that things will not be so bad after all, and that the US government has learned from the market reaction. The fact that difficult negotiations still lie ahead has been somewhat overlooked. Trump's announcement has once again made it clear that the danger of a full-blown trade war has not been averted."
"The 50% tariffs on EU goods announced by Trump exceed the 20% announced on 'Liberation Day' and the 39% allegedly deserved according to the formula used at the time. Clearly, the level of tariffs is being set completely arbitrarily, so we cannot assume that the tariffs announced at the beginning of April will simply remain in place if the talks fail. The trade deal between the United Kingdom and the United States was heavily criticised afterwards. However, given the significantly more challenging negotiations with the EU, this deal is starting to look better. Although the UK has been hit with a 10% tariff, this seems manageable compared to 50%, supporting our forecast of a stronger pound in the coming weeks."
"Following Trump's latest U-turn, we will, of course, have to wait and see what happens next. It is possible that a deal with the European Union will be reached by 9 July. However, it is questionable what has changed in terms of the fundamental problems following a phone call. One thing should be clear after Friday's announcement: the brief respite from tariffs that we enjoyed was only temporary. We are likely to face more turbulent days and weeks ahead precisely because the 90-day suspension of higher reciprocal tariffs is coming to an end."
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