Trade headlines continue to dominate in an ongoing saga that is sweeping both the political and financial news publications. While there is a certain element of fatigue based around these stories, it’s important that investors don’t lose track of the developments, as these have a real risk of impacting the stock market, business investments, and the overall American economy.
This week, the European Union threatened to retaliate if President Trump makes good on his plan to introduce a 20% tariff on all imported autos.
Europe Threatens Tariffs on $300 Billion of U.S. Goods
Late last month, President Trump said on twitter “If [European Union] tariffs and barriers are not soon broken down and removed, we will be placing a 20% tariff on all of their cars coming into the U.S. Build them here!”
The European Union sent a response to the U.S. Department of Commerce this week stating that any auto tariffs from the U.S. would be met by up to $300 billion worth of tariffs on U.S. goods. This would impact up to 20% of U.S. exports.
While willing to respond under pressure, the E.U. does not actually want to engage in a full-blown trade war if it can be avoided.
Angela Merkel, German Chancellor and arguably the most powerful politician in the European Union, continued the dialogue on July 4th, telling German lawmakers that “We now have tariffs on aluminum and steel and we have a discussion that is far more serious. This is taking on the contours of a trade conflict – I don’t want to use words that go any further. It’s worth every effort to try and defuse this so that this conflict does not become a war.”
Local Manufacturers Fearful of the Impact of Trade Tariffs
General Motors (NYSE: GM) said in a recent filing to the commerce department that “Increased import tariffs could lead to a smaller GM, a reduced presence at home and abroad for this iconic American company, and risk less – not more – U.S. jobs.”
It is also critical to note that 60% of the autos made by European companies in the United States are exported rather than sold domestically, which benefits the nation’s trade balance. German auto facilities in the U.S. create 120,000 local jobs.
Complex Issues That Will Persist for Some Time
The trade situation is incredibly complex, and the rhetoric is not often indicative of final outcomes. President Trump’s threats are often seen as provocative, but this is often by design, to force other nations to engage in trade talks.
Whether the ongoing disputes will result in meaningful outcomes is yet to be seen. For now, no new tariffs have been imposed, and this is only good news for investors, at least for the meantime.
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