Tariff Gun Locked and Loaded
While the US celebrated the trade truce by roaring into July with new stock market records, Europe sat in relative mute. Over recent decades, there’s been what can only be described as an aviation spat across the pond. It crescendoed yesterday to a nerve-wracking fever pitch as the US turned its tariff gun off the Chinese, and onto the Europeans.
It hasn’t pulled the trigger yet, but safety is off on 4 billion dollars’ worth of tariffs loaded in the barrel. That’s along with $21 billion worth of tariffs already threatened in April, and $3 billion worth already declared on steel and aluminum. With Trump’s trigger finger ready, olives are on the line, fine Italian cheese too, Scotch whiskey, and even sausages. This is code red, people.
The controversy began 14 years ago with only a light quarrel between Washington and the European Union. Each has long enjoyed one half of an aviation duopoly, Europe with Airbus and the US with Boeing. To this day, both regions accuse each other of unfairly helping their firm on the international stage, by way of wrongly awarded grants. Even charged with equal crimes, the pair won’t agree to call it all square. Following a tariff threat yesterday, this debacle has had danger signals glowing bright red for investors.
The World Trade Organisation has attempted to referee the dispute but has ruled for and against both sides. It’s a kerfuffle. As the market well knows, tariff wars can mushroom, hurting global growth. Investors with exposure to big exporters could feel the pain both ways here, Berenberg’s European economist, Florian Hense, admitting “this is not the kind of news you want to hear as an investor.”
If Italian cheese suddenly becomes 25% more expensive, you’ll hear about it!