Research

Menu

Back

Choose Language

April 17, 2019

News

A new frontier of trade tensions as US turns attention to Europe

As
a trade deal between the US and China comes within striking distance, it
doesn’t look like the Trump administration is about to hang up its hat and call
it a day with regard to its protectionist push. Rather, it seems to be saddling
up to go into a fresh tussle, this time with the EU.

Tensions
flared up after a series of accidents spurred European aviation authorities to
ground Boeing 737 Max aircrafts – which belong to the US firm’s best-selling
family of models. This breathed new life into dispute that’s dragged on for
more than a decade under WTO adjudication: Both sides accuse each other of offering
domestic aircraft manufacturers (Airbus in Europe and Boeing in the US) illegal
aid.

Following
a WTO ruling that found EU subsidies to Airbus have had an adverse impact on
the US, the US has threatened tariffs on some $11Bn worth of EU goods. The
product list (which will be finalized after the WTO arbiter evaluates the
claims) covers mainly agricultural products: 
salmon, lemons, an array of cheeses from Pecorino to Stilton, olive oil,
Marsala wine… For now, the market reaction has been minimal and our equity
analysts believe this is because such goods are mainly produced by private firms
that don’t trade on the stock exchange – farms, fisheries, dairies… There is
also some reassurance in the fact that the US is going through the correct
channels (the WTO). Last year, it attracted severe criticism following the way
it rolled out steel tariffs – the EU Trade Commissioner Pascal Lamy was quoted as saying:
The world steel market is not the wild
west, where people do as they like. There are rules to guarantee the
multilateral system
.’

The EU has come out with retaliatory tariffs totaling over $22 billion on items such as plums, mangoes, planes, beeswax, tractors and car parts. Now, the danger is further escalation. The US-China spat began with trivial items  like washing machines, but before long, the value of goods caught in the US’ lasso was worth $250 billion, with $267 billion more threatened. The US is currently considering tariffs on auto imports - a move that could really imperil the EU economy, hitting Germany the hardest as the below chart shows. Germany’s export-oriented economy is already feeling the fall-out from the US-China dispute which weighed on global trade.



Source: Chelem, World Bank, Euler Hermes, BIL

Over the longer term, the result
may be that the US pushes the EU to forge stronger ties in the east. Already,
Europe has formed the world’s largest trading pact with Japan, covering roughly
one-third of global GDP. As it stands, the EU is China’s largest trading
partner, and on April 9th, the two agreed to furthers strengthen
their trade relationship and widen market access. Italy has become the first G7
nation to sign on to China’s Belt and Road Initiative and last week Germany’s telecoms
regulator gave its clearest signal yet that Huawei will not be excluded from
the buildout of 5G networks, despite pressure from the US.

In
the shorter-term, a tariff standoff risks putting a dent in both business and
investor confidence. And the problem with confidence is that all too often, it  leaves on horseback and returns on foot…

Disclaimer

All financial data and/or economic information released by this Publication (the “Publication”); (the “Data” or the “Financial data and/or economic information”), are provided for information purposes only, without warranty of any kind, including without limitation the warranties of merchantability, fitness for a particular purpose or warranties and non-infringement of any patent, intellectual property or proprietary rights of any party, and are not intended for trading purposes. Banque Internationale à Luxembourg SA (the “Bank”) does not guarantee expressly or impliedly, the sequence, accuracy, adequacy, legality, completeness, reliability, usefulness or timeless of any Data. All Financial data and/or economic information provided may be delayed or may contain errors or be incomplete. This disclaimer applies to both isolated and aggregate uses of the Data. All Data is provided on an “as is” basis. None of the Financial data and/or economic information contained on this Publication constitutes a solicitation, offer, opinion, or recommendation, a guarantee of results, nor a solicitation by the Bank of an offer to buy or sell any security, products and services mentioned into it or to make investments. Moreover, none of the Financial data and/or economic information contained on this Publication provides legal, tax accounting, financial or investment advice or services regarding the profitability or suitability of any security or investment. This Publication has not been prepared with the aim to take an investor’s particular investment objectives, financial position or needs into account. It is up to the investor himself to consider whether the Data contained herein this Publication is appropriate to his needs, financial position and objectives or to seek professional independent advice before making an investment decision based upon the Data. No investment decision whatsoever may result from solely reading this document. In order to read and understand the Financial data and/or economic information included in this document, you will need to have knowledge and experience of financial markets. If this is not the case, please contact your relationship manager. This Publication is prepared by the Bank and is based on data available to the public and upon information from sources believed to be reliable and accurate, taken from stock exchanges and third parties. The Bank, including its parent,- subsidiary or affiliate entities, agents, directors, officers, employees, representatives or suppliers, shall not, directly or indirectly, be liable, in any way, for any: inaccuracies or errors in or omissions from the Financial data and/or economic information, including but not limited to financial data regardless of the cause of such or for any investment decision made, action taken, or action not taken of whatever nature in reliance upon any Data provided herein, nor for any loss or damage, direct or indirect, special or consequential, arising from any use of this Publication or of its content. This Publication is only valid at the moment of its editing, unless otherwise specified. All Financial data and/or economic information contained herein can also quickly become out-of- date. All Data is subject to change without notice and may not be incorporated in any new version of this Publication. The Bank has no obligation to update this Publication upon the availability of new data, the occurrence of new events and/or other evolutions. Before making an investment decision, the investor must read carefully the terms and conditions of the documentation relating to the specific products or services. Past performance is no guarantee of future performance. Products or services described in this Publication may not be available in all countries and may be subject to restrictions in some persons or in some countries. No part of this Publication may be reproduced, distributed, modified, linked to or used for any public or commercial purpose without the prior written consent of the Bank. In any case, all Financial data and/or economic information provided on this Publication are not intended for use by, or distribution to, any person or entity in any jurisdiction or country where such use or distribution would be contrary to law and/or regulation. If you have obtained this Publication from a source other than the Bank website, be aware that electronic documentation can be altered subsequent to original distribution.

As economic conditions are subject to change, the information and opinions presented in this outlook are current only as of the date indicated in the matrix or the publication date. This publication is based on data available to the public and upon information that is considered as reliable. Even if particular attention has been paid to its content, no guarantee, warranty or representation is given to the accuracy or completeness thereof. Banque Internationale à Luxembourg cannot be held liable or responsible with respect to the information expressed herein. This document has been prepared only for information purposes and does not constitute an offer or invitation to make investments. It is up to investors themselves to consider whether the information contained herein is appropriate to their needs and objectives or to seek advice before making an investment decision based upon this information. Banque Internationale à Luxembourg accepts no liability whatsoever for any investment decisions of whatever nature by the user of this publication, which are in any way based on this publication, nor for any loss or damage arising from any use of this publication or its content. This publication, prepared by Banque Internationale à Luxembourg (BIL), may not be copied or duplicated in any form whatsoever or redistributed without the prior written consent of BIL 69, route d’Esch ı L-2953 Luxembourg ı RCS Luxembourg B-6307 ı Tel. +352 4590 6699 ı www.bil.com.

Read more


More

October 15, 2024

BILBoard

BILBoard November 2024 – Beyond the U...

  The race for the US Presidential election on November 5 is heating up, but business activity is essentially frozen given the uncertain outcome and...

October 11, 2024

Weekly Insights

Weekly Investment Insights

  Hurricanes caused widespread damage last week. In the US, Florida residents rushed to evacuate ahead of Hurricane Milton, which followed closely on the heels...

October 4, 2024

Weekly Insights

Weekly Investment Insights

  Comments from central bankers toyed with both currencies and rate markets over the past week. The Fed Chair Powell said that the US central...

September 30, 2024

Weekly Insights

Weekly Investment Insights

Autumn is in full swing and with the change of season came a turnabout announcement that was noticed in all corners of the market. Beijing’s...

September 30, 2024

BILBoard

BILBoard October 2024 – Harvest season

Executive Summary As autumn approached, we saw increased volatility on capital markets. Bad days were swiftly followed by significant rallies, and like the leaves currently...

All articles