The EU signals it may be ready to compromise with US over tariff dispute

Investors could breathe a small sigh of relief yesterday as stocks in the US and Europe saw a little more stability. The slight recovery in stock prices could have been related to the fact the US Ambassador to Germany met with major carmakers including BMW, Volkswagen and Daimler – whose executives allegedly said they favor scrapping car tariffs between the US and Germany as part of a broader deal on trade (according to a Wall Street Journal report).

Indeed, Daimler is already feeling the squeeze, as it warned of lower profits this year, saying proposed new import tariffs on cars exported from America to China would hurt sales of Mercedes-Benz sports utility vehicles.

The reports were vindicated today as the European Union signalled that it is ready to engage with the US to solve the trade-war row according to the EU Trade Commissioner Cecilia Malmström, who said that while the US tariffs were ‘illegal’ and in breach of WTO rules, she added: “We are always open to talk with the US. The whole EU is based on the idea that we talk.”

Could this openness from Europe be the beginning of a more fruitful relationship between the bloc and the Trump’s Republican cabinet? We can only hope so, given an improvement in relations and an end to trade tension could boost stock prices, but with Trump taking pot shots at German Chancellor Angela Merkel on Twitter all week, things are still tense between European governments and his own in Washington. 

Indeed, the words from the Trade Commissioner came only one day after the EU’s trade representatives said the bloc would launch a raft of retaliatory tariffs against the US on Friday, which would mainly be targeted at products designed in red (Republican majority) states, in order to hit Trump’s base (most fervent supporters) directly.

However, given that these counter-measures would only amount to €2.8 billion’s worth of US goods, the material impact is likely to be limited, despite the headlines from major news outlets that warn of ‘severe consequences’. US Commerce Secretary Wilbur Ross, who is often touted as a key instigator of the trade tariffs, has dismissed the concerns about higher costs, arguing that the effects would be minimal.

Both Ross and Trump have long maintained that the US has already been in the midst of a trade war with both its allies and China for many years, given the great gutting of America’s middle class and its factory workers, who saw their jobs shipped overseas in huge numbers amid increasing globalisation in the last few decades. Not only this, but Chinese intellectual property theft has been a concern even with past administrations. 

Some volatility has returned to markets this Thursday, as the FTSE 100, DAX, CAC40 and IBEX 35 indices in Europe dropped as the day continued, so investors entering the market or holding positions should be mindful that asset prices may fluctuate as the dispute continues, at least until a deal is struck between the EU and US on tariffs. 

Related: Are trade war fears justified?

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