Ahead of Memorial Day weekend, President Donald Trump reignited trade tensions, sending financial markets reeling with two threats, one of which was directed at the European Union.
“We’re having fruitless conversations with them! Trump wrote on Truth Social early Friday, “Therefore, I am proposing a straight 50% tariff on the European Union, beginning June 1,” claiming that the EU has been “very difficult to deal with.”
Citing “Monetary Manipulations,” trade barriers, taxes, corporation penalties, and other trade hurdles, Trump said that these actions had “led to a Trade Deficit with the U.S. of more than $250,000,000 a year, a number which is totally unacceptable.”
His promise to impose greater tariffs on Europe was issued just minutes after he threatened to impose 25% tariffs on Apple (AAPL) for every iPhone sold that was not manufactured in the US. Early trading saw the U.S. stocks SPX COMP DJIA trading lower. The possibility of an Apple tariff was already causing stock futures to decline, but losses increased further after Trump threatened to impose penalties on Europe.
The most recent trade hiccup coincides with Wall Street and investors paying greater attention to outperforming European equities this year. This year, the Stoxx Europe 600 index XX:SXXP has increased by more than 7%, while the S&P 500 SPX has decreased by 0.67%. Following a 2% decline earlier, Europe’s main stock index fell 1% on Friday.
Pharmaceuticals, automobiles and auto parts, and computer and electronic goods are the top three imports from the European Union to the United States, in that order. Energy items are what the United States exports most to Europe. With BE Semiconductor Industries (NL:BESI), STMicroelectronics (STM), and Infineon Technologies (XE:IFX) all down about 3%, tech and auto companies took the brunt of the losses. Similar losses were reported by Mercedes-Benz (XE:MBG), Daimler Truck (XE:DTG), and BMW (XE:BMW).
The European Union has around nine days to come to a deal with Trump or risk a heavy tax. After Trump announced a 90-day halt to his “liberation day” tariffs on April 2, the trading group was hit with a 10% duty. A historic market selloff was attributed to such tariffs, which were based on a crude calculation.
Politico and other media sites have reported that E.U. trade chief Maros Sefcovic and his U.S. trade representative Jamieson Greer had planned a phone conversation for later Friday. MarketWatch called the European Commission for comment, but a spokeswoman did not immediately answer the call.
All imported automobiles and numerous auto parts, including those from Europe, are subject to a 25% duty in the United States. Additionally, most items are subject to a 10% U.S. tariff overall, and the Trump administration has threatened to impose a 20% duty on European goods if no agreement is reached by July 8, when a 90-day moratorium on higher “liberation day” levies is set to expire.
The European Commission declared earlier in May that, should negotiations with the United States fail, it will begin a consultation for retaliation on 95 billion euros ($107 billion) in of U.S. goods.
The president feels that offers from the EU are not as good as those from our other significant trading partners. In an interview with Fox News on Friday, Treasury Secretary Scott Bessent stated, “This is simply a reaction to the pace of the European Union.”
The EU has a “collective action problem,” according to Bessent, since 27 nations are “represented by this group [in] Brussels.” He added that he thinks it would “light a fire under the E.U.” “Some of the feedback that I’ve been receiving is that the underlying countries don’t even know what the E.U. is negotiating on their behalf,” he said.
Some strategists believe that the possibility of new trade tensions with the United States is coming at a bad time. A group of Nomura strategists under the direction of George Buckley stated, “We expect the euro area economy to recover only gradually in the near term due to soft consumption and structural weaknesses.”
“We think that while German and EU fiscal announcements will be a significant tailwind only in the medium term, U.S. tariffs will be a significant immediate headwind.” In a letter to clients on Friday, they stated, “We have lowered our terminal rate forecast to 1.50% (cuts in June, July, and September) and now expect ECB [European Central Bank] rates to be cut to sub-neutral.”
