The trade war between the US and EU, which threatened to escalate sharply in recent days, appears to have cooled down after President Donald Trump and European Commission head Jean-Claude Juncker agreed to the beginnings of a deal that would end tensions between the two parties.
“This was a very big day for free and fair trade,” Trump said in a press conference after the pair’s meeting.
Preliminary reports suggest the EU agreed to import more American soybeans and liquefied natural gas. Both sides will work to decrease industrial tariffs and adjust regulations to allow US medical devices to be traded more easily in European markets.
Trump himself told reporters the meeting laid the foundations for a future relationship with “zero tariffs, zero barriers, and zero subsidies on non-auto industrial goods.”
The agreement buoyed financial markets overnight and provided a general sense that the trade war – which many economists have forecast could have a substantial negative impact on global growth – has passed its zenith.
Understandably, Juncker and Trump’s meeting is all that most economists, strategists, and analysts are talking about right now. But what are they saying? Business Insider has rounded up some of the most interesting reactions to the deal struck in Washington on Wednesday.
Viraj Patel, FX strategist at ING
“It may be a bit too hasty to call the end of the ‘Cold Trade War’ after the US and EU agreed to take steps towards freer bilateral trade between the two nations – not least because talk is cheap and there’s a precedent for this White House to renege on any trade peace offerings (China a case in point),” Patel wrote on ING’s Think blog.
“But for risky assets, averting an imminent global trade war was probably the best possible outcome that the Trump-Juncker showdown could deliver.”
He continued: “Earlier this summer, we noted how the US dollar had been the big winner of the Trade War Trap that has been plaguing global markets – so it’s not all too surprising to see the currency lower across the board on the back of easing global trade war risks (note USD crosses were trading at a 2-3% premium relative to interest rate differentials and global risk sentiment – and this is now starting to unwind).”
Gregory Daco, Head of US Economics at Oxford Economics
For Oxford Economics, it’s all about seeing whether Trump’s conciliatory words turn into conciliatory actions.
“Without pouring ice cold water on this apparent breakthrough in transatlantic relations, we caution that the language utilised on both side was purposefully ambiguous and general,” Daco wrote to clients.
“We know from recent experience with China, that one tweet can halt communication between the two parties, and rapidly escalate into the imposition of tariffs.”
He added: “The next few days and weeks will be essential in determining whether increased communication between the US administration and its European counterparts is real, and whether we will effectively see a relaunch of discussions similar to the Transatlantic Trade and Investment Partnership.”
Lewis Alexander, Aichi Amemiya, Robert Dent, and Kenny Lee, economists at Nomura
Nomura’s team is still worried about China, saying “there is still non-negligible risk from the US-China trade dispute.”
“In addition, while the Trump administration could offer an exemption to the EU for the Section 232 autos investigation – possibly in addition to Mexico, Canada and Korea – the US could still target auto imports from other countries such as Japan and China.”
“The implications of today’s developments for the US-China trade dispute remain unclear. On one hand, the US-EU deal could provide a template for an eventual US-China agreement to de-escalate their ongoing trade dispute,” they continue, in a note circulated on Wednesday evening.
“China could view today’s agreement as another example of President Trump backing down before his proposed policies would have their largest effect. In that scenario, it may be logical for China to try and re-establish formal negotiations with the US before USTR finishes the review process on 30 August for the additional $US200bn in Chinese imports targeted by a proposed 10% tariff.”
Karen Ward, Chief Market Strategist for EMEA, JPMorgan Asset Management
“That both sides have signalled a willingness to negotiate on tariffs is clearly a step in the right direction. The US administration can argue it has paved the way for lower tariffs on US goods headed into the EU, and President Juncker can demonstrate that he has protected the interests of the EU,” Ward wrote.
“This has been seen to be universally positive by markets and the European auto sector is up by more than 2%.”
Ward, however, advised caution, citing a similar agreement with China which has since collapsed.
“It did look as though the US had reached agreement to negotiate with China a few months ago and talks have since broken down. And it might not be entirely straightforward to reduce the tariffs facing US cars headed in to the EU.
“There is considerable vested interest to protect domestic industry within the EU given 6% of all EU employment is related to the auto industry.”
Paul Donovan, Chief Economist at UBS Global Wealth Management
“The EU-US meeting on trade led to a statement that was weird. US President Trump seems to have surrendered over taxing autos. In exchange the EU offered to talk. The EU is good at talking. There were noble statements about ending tariffs, subsidies and non-tariff barriers – perhaps the TTIP talks begun under President Obama will be revived?” – Donovan told clients on Thursday morning.
Of particular note, Donovan said, was the talk of the EU importing more US soybeans.
“US President Trump tweeted that EU officials were going to buy more US soybeans,” he said. “EU officials cannot do that.”
Donovan added, “The US is already the largest exporter of soybeans to the EU. There are no subsidies, trade taxes or quotas on soybeans in the EU. Private farmers decide whether to buy more soybeans or not.”
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