Τhe US/China trade war which has raged over the last year, decimating global growth and rattling world markets has all but come to an official end now.
The two economic superpowers have been locked in talks this year and are reportedly close to striking an official deal. China has warmly welcomed the news of a deal as it has been hardest hit out of the two sides.
Trump Shifts His Focus
While tensions between the US and China have simmered down substantially over the last few months, it seems that things have gotten a little too quiet for Trump.
Like a playground bully picking on a new victim, Trump has now turned his eye elsewhere in the world; the European Union.
EU Behaving Badly
Trump has long criticized the EU for treating the US “badly.” This is a reference to the US’s $16.9 billion trade deficit with the EU last year. The US leader now warns:
“Those days are changing rapidly, they understand it.”
Trump recently announced a fresh wave of tariffs that could hit the EU this summer. The US and EU are due to start trade talks soon. And we can consider this announcement an intimidation tactic by Trump.
Trump Threatens Action Ahead of Trade Talks
Trump recently threatened that he will be applying trade tariffs worth $11 billion to a large range of EU goods. These include ski wear, air carriers, cheese, and wine.
Now, the market is digesting reports that Trump is demanding that agriculture be included in the upcoming trade talks between the EU and the US. If not, he claims the US will press ahead with tariffs on automobiles.
EU Standing its Ground
According to EU negotiating directives agreed on Monday this week, agriculture is to be excluded from the upcoming negotiations.
However, Trump has been very vocal in his demands, telling attendees at an event this week:
“They barely take our agricultural products, and yet they can sell Mercedes Benz and they can sell anything they want in our country including their farm products, and it’s not fair,”
Trump also said:
“I talk to them and say ‘fellows, that has to change, has to change’ — and you know, I said ‘frankly, look if it doesn’t change, we’re gonna tariff all of your cars and everything else that comes in. You can’t treat our farmers that way, you can’t treat our people that way.”
EU Trade Chief Hopeful of Quick Resolution
Trump made his comments shortly after EU trade chief Cecilia Malmstrom told reporters that she feels they could agree on a transatlantic trade deal “quite quickly”. However, this was under the condition that the US and EU agree on mutual terms to begin negotiations.
Trump Warned Over Tariffs Threat
Malmstrom’s comments were made following the EU meeting on Monday. The meeting saw EU leaders agreeing to launch trade talks with the US. However, there was the caveat that they would suspend talks if Trump imposed any new tariffs or refused to withdraw existing ones.
Essentially, the EU is saying that if Trump applies tariffs to automobiles in retaliation for agriculture being left out of trade talks, the EU will pull out of the talks altogether.
Commenting on the meetings, European Commission President Jean Claude-Juncker said on Twitter:
“With today’s adoption of the negotiating directives for trade talks, the EU is delivering on what Donald Trump and I have agreed”.
The market now waits to hear if Trump will back down and allow trade talks to happen without the inclusion of agriculture. Or, perhaps, the EU will back down and include agriculture in the trade talks program.
While EURUSD continues to trade along the 1.11865 support level, under the bearish trend line from year-to-date highs, there is growing risk of a squeeze higher.
Volatility has contracted greatly over recent months. And though EURUSD has continued to put pressure on support, it has yet to make a meaningful move lower. Bulls will need to see a break above the bearish trend line as well as structural resistance at the 1.1443 level to negate the near term bearish bias.
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