Global Markets on Alert: Europe Suspends Approval of US Trade Deal
The European Parliament plans to halt the approval of a US trade deal originally agreed upon in July, as reported by sources within its international trade committee. This suspension is set to be announced in Strasbourg, France, raising significant concerns and further straining US-Europe relations.
Rising Tensions Between US and Europe
– The suspension reflects escalating tensions, especially as Donald Trump intensifies efforts to acquire Greenland, coupled with threats of new tariffs announced over the weekend.
– Financial markets have reacted negatively to this standoff, with fears of a potential trade war resurfacing.
Market Reaction
– Tuesday saw a decline in shares across both sides of the Atlantic:
– The Dow Jones fell by more than 1.7%.
– The S&P 500 decreased by over 2%.
– The Nasdaq closed approximately 2.4% lower.
– In Asia-Pacific markets, results were mixed:
– Major indexes in Japan and Hong Kong were slightly down.
– Shares in mainland China and Hong Kong rose modestly.
– Gold continued its upward trend, surpassing $4,800 (£3,570) an ounce for the first time, while silver dipped from its previous record high above $95 an ounce.
Currency Market Developments
– The US dollar remained stable against major currencies, despite a 0.5% drop overnight—the largest daily decline since early December.
Context of US Trade Deal
– The trade deal had previously eased tensions by reducing US tariffs on most European goods from 30% to 15% following discussions at Trump’s Turnberry golf course in Scotland.
– In return, Europe had pledged to invest in the US and implement changes to boost American exports. However, this deal remains pending approval from the European Parliament.
Key Figures React
– Following Trump’s recent tariff threats regarding Greenland, Manfred Weber, a prominent German MEP, stated, “Approval is not possible at this stage,” reflecting the trade committee’s stance.
– Bernd Lange, chair of the committee, emphasized that the US’s actions threaten the integrity and sovereignty of EU member states, necessitating the suspension of the deal’s legislative proposals.
Future Implications for Trade Relations
– The EU’s decision raises questions about potential retaliatory measures against the US. Last year, the bloc had proposed €93bn ($109bn, £81bn) in tariffs on American goods in response to Trump’s trade policies but paused while the deal was finalized.
– With the extension for these tariffs ending on February 6, any new levies could be enacted unless the EU finds a resolution.
Call for Retaliation
– French President Emmanuel Macron has urged the EU to explore retaliation options, including the use of an anti-coercion instrument dubbed a “trade bazooka.” He labeled the accumulation of new US tariffs as fundamentally unacceptable.”
US Response and Concerns
– US Treasury Secretary Scott Bessent, at the World Economic Forum in Davos, implored European leaders to avoid retaliation, suggesting that calm discussions with President Trump would yield better outcomes.
– US Commerce Secretary Howard Lutnick and US Trade Representative Jamieson Greer echoed these sentiments, warning that any retaliatory actions would not go unanswered.
The Bigger Picture
– The EU and the US are each other’s largest trading partners, with over €1.6tn ($1.9tn, £1.4tn) in goods and services exchanged, accounting for nearly a third of global trade.
– Historical reactions to Trump’s tariffs have shown reluctance from many countries to retaliate, as negotiations took precedence. However, tensions persist with China and Canada following through on their threats.
Conclusion
The suspension of the US trade deal by Europe signals a deepening rift in transatlantic relations, with significant repercussions for global markets. The landscape remains unpredictable as both sides brace for potential retaliation and further negotiations, ultimately shaping the course of international trade dynamics in the coming months. As developments unfold, stakeholders will be closely monitoring how these tensions evolve and impact global economic stability.