US trade war and the EU’s expectations post-G20

EPA-EFE/BALLESTEROS

S President Donald J. Trump listens to French President Emmanuel Macron next to Japan's Prime Minister Shinzo Abe attend the "family photo" ceremony at the G20 Summit in Buenos Aires, November 30, 2018.

US trade war and the EU’s expectations post-G20


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US President Donald J. Trump seems to be forging ahead with his campaign promises of a trade war between major economic players, ostensibly to ‘level the playing field.’

Trump has often complained of an ‘unfair’ deal between the US and other nations, with the North American Free Trade Agreement or NAFTA, being a common target during campaign speeches. NAFTA has now been replaced by the United States-Mexico-Canada Agreement, which was signed at the G20 meeting in Buenos Aires.

A similar agreement could be in the works for the EU. After threatening earlier this year to raise auto tariffs, Trump and European Commission President Jean-Claude Junker agreed in July to a temporary détente on new tariffs. However, other EU officials are not so optimistic that the ceasefire will hold. EU Budget Commissioner Gunther Oettinger, formerly minister-president of the German state of Baden-Württemberg, one of the hearts of German auto manufacturing, said to German financial paper Wirtschaftwoche that he expected new tariffs before Christmas.

Auto industry stocks, including Volkswagen and BMW, dropped 0.7% and 1.26% respectively at the news. But the biggest shots in this war lie ahead and depend on a new trade deal being negotiated between the United States and China.

Trump’s meeting Chinese President Xi Jinping in Buenos Aires was meant to smooth the waters concerning Trump’s often fiery rhetoric that accuses China of manipulating their currency and otherwise sabotaging US-Sino trade relations in favour of China, which prompted a US official to threaten to impose tariffs of up to 40% on imported cars from China.

The EU fears that any new trade deal between the two economic powerhouses may freeze the EU out, according to EU Commissioner for Trade Cecilia Malmström, who recently said that while she hopes the two countries would be able to find a solution to the current trade imbroglio, the EU may not like the results of that peacemaking – EU companies would be left out while US and Chinese firms gain privileged access to each other’s markets.

Nordea Markets analyst, Tuuli Koivu, on the other hand, believes that fears in the wake of a trade deal at the G20 summit between Xi and Trump are overhyped, as Trump’s strict stance on China is one of the core platforms of his electoral support. It remains to be seen for now which, if any, of Trump’s economic threats towards the EU, will be realised.

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