President Trump has announced that starting August 1, the import duty on products from the European Union and Mexico will be increased to 30 percent. This tariff increase is in addition to previous sectoral levies, such as the 27.5 % already in place on automobiles. In Brussels, the European Commission has decided to suspend its retaliatory measures for the time being, hoping that further negotiations will still lead to a mutually beneficial trade arrangement with Washington. Ursula von der Leyen, president of the European Commission, stressed that the EU is sticking to a twin-track strategy: continuing diplomatic dialogue on the one hand and preparing proportional countermeasures in case talks fail.
Financial markets reacted immediately to the announcement. Forward contracts on U.S. stock markets fell nearly three-tenths percent, with the Dow-E-minis weakening 0.29 %, the S&P 500-E-minis down 0.28 % and the Nasdaq 100-E-minis also down about 0.28 %. Although investors now seem accustomed to Trump's recurring threats, uncertainty continues to mount about the potential impact on transatlantic supply chains and global economic growth.
Reactions were also felt outside the US and EU. In Canada, futures prices on the S&P/TSX index dropped slightly as investors reduced their risk in anticipation of further escalation. In South Korea, Trade Minister Yeo Han-koo indicated that an agreement is possible in principle before Aug. 1, but warned that 20 days do not provide enough time for a conclusive, detailed agreement. Meanwhile, gold and silver prices climbed to the highest levels in weeks due to safe-haven demand; spot gold around $ quoted 3.367 per ounce, silver reached a level not seen since 2011.
In Brussels, at the meeting of EU trade ministers, Maroš Šefčovič stressed that the EU is doing everything in its power to prevent an escalation, but is also "ready with all instruments" to defend its economic interests. Italy's Minister Tajani posted countermeasures worth 21 billion euros ready should an agreement not be reached in time.
With Trump's announced 30 percent levy, the United States is putting unprecedented pressure on the transatlantic trade relationship. While negotiators in Brussels are still searching for a compromise, companies and investors are preparing for a period of heightened volatility. The outcome of the talks before the Aug. 1 deadline will determine whether trade tensions level off or escalate further.
