Unease Surfaces Regarding Border Control Measures
The ongoing trade dispute between the United States and the European Union (EU) is edging closer to a resolution, with both parties aiming to reach a politically negotiated compromise before the July 9th deadline set by President Donald Trump, who had threatened to impose 50% tariffs on EU imports[1][3].
Negotiations commenced in mid-June between the European Commission, representing the EU member states in trade matters, and the Trump administration. While the EU initially proposed a zero-tariff agreement on industrial products and strategic purchases such as US liquefied natural gas, it now appears a compromise is emerging with a **baseline 10% tariff on EU imports** instead of zero[1].
This tentative deal has sparked divisions among EU member states. Germany and Italy reportedly support a deal with a 10% tariff, while Ireland and France remain more sceptical. French President Emmanuel Macron has emphasized the need for compensation on EU goods if the US maintains the 10% tariff, suggesting a reciprocal measure of equal tariff on US imports into the EU[1].
Beyond tariffs, the negotiations have also touched upon changes to EU digital rules, indicating that the dispute and its resolution may extend into regulatory areas important for trade relations[2].
The looming tariffs threaten to disrupt the $2 trillion US-EU trade relationship, the world's largest[1][3]. While a 10% tariff baseline is less damaging than a 50% tariff, it would still increase costs for European exporters to the US, potentially reducing competitiveness and profitability in important industrial sectors. Countries more exposed to US trade, such as Germany and Italy, may face economic strain but appear willing to accept some tariffs in exchange for preserving broader market access[1].
The dispute and its resolution process create uncertainty in the European markets, possibly delaying investment decisions and affecting stock prices of key exporters during negotiation periods. If reciprocal tariffs are imposed by the EU as compensation, this could lead to price increases on US goods in Europe, impacting consumers and businesses reliant on imports, and potentially provoking retaliatory measures.
On the financial front, the Dax has gained more than 19% since the beginning of the year, with the strongest value at the close of trading being Rheinmetall. Meanwhile, the dollar index has already lost over 10% of its value since the start of the year[1].
While the trade dispute remains tense, analysts at Commerzbank have expressed concerns about the long-term status of the US dollar. The German leading index ended the week with losses, down 0.6% at 23,787 points. J.P. Morgan raised its target price for Rheinmetall from 2.100 to 2.250 euros. The share of Hugo Boss showed strength in the small-cap index, rising over 4% after a mandatory announcement by British Hugo Boss major shareholder Frasers.
In other news, the Chinese Ministry of Commerce announced tariffs of up to 34.9% on brandy, effective July 5th. This move could potentially impact French cognac producers Pernod Ricard and Remy Cointreau, who are already affected by the trade conflict between Brussels and Beijing.
Investors fear that the passage of the controversial tax and spending bill by Donald Trump will significantly increase the debt of the USA. North Sea oil Brent and US grade WTI prices have slipped, losing over 1.5% to 67.75 and 66.04 dollars per barrel respectively. Despite these concerns, investors anticipate that the Opec+ group will agree to increase production over the weekend.
EU Commission President Ursula von der Leyen recently dampened expectations of the outcome of the ongoing tariff talks, stating that many are hoping for a basic agreement. However, the resolution of unresolved issues like digital regulation implies that ongoing trade frictions could persist beyond the current tariff discussions[1][2][3].
- The EU initially proposed a zero-tariff agreement on industrial products, but a compromise is emerging with a baseline 10% tariff on EU imports instead, affecting various sectors, including energy and finance.
- Negotiations have also touched upon changes to EU digital rules, indicating that the dispute may extend into regulatory areas important for future business relations.
- If reciprocal tariffs are imposed by the EU as compensation, this could lead to price increases on US goods in Europe, potentially affecting consumers and businesses in the energy, finance, and business sectors.
