Trump Delays 50% EU Tariff to 9th July: Trader Outlook

Trump has announced a delay on the fresh 50% tariff the US plans to impose on the EU. Following a measure that seemed retaliatory, the US president appears to have eased off on the tariffs after a conversation with Ursula von der Leyen.

Originally planned for the 1  of June, the 50% tariff has been moved to the 9   of July. Leyen noted that the intention was to create more space to reach a good deal for both the US and the EU. The president of the European Commission also emphasised the closeness and importance of keeping good trade relations between the two entities.

This article will explore the details of this event and what preceded it to help better understand the implications it has for traders.

Trump’s tariff plans and the market so far

Trump’s tariff plan has had a sweeping impact on global markets, as the US economic force has a worldwide effect. Even non-major US trading partners have felt the rippling effects of the policy.

Making matters worse for markets is the volatile and unpredictable nature of the announcements. Many seem to be driven by a sense of retaliation rather than sound judgment, making markets unable to consolidate and fall back into their state of relatively gradual movement.

This could’ve been seen right away with the first formal announcement of the tariff plan. On the 2  of April, the so-called Liberation Day, major US index futures (S&P 500, Nasdaq, Dow) immediately dropped, with a slide of 4-6% following the next day and steepening the one after that. The US stock market lost $6.6 trillion in value, making it the greatest financial market drop in history.

The tariffs have also had an adverse effect on general economic performance, with the dollar index declining around 6% year-to-date. Oil prices, both for Brent Crude and WTI, have dropped by around 15% since the announcement.

However, even chaos in markets creates opportunity. While markets are swift to retract when negative news hits, they are similarly happy to grow when tariffs are delayed or lowered.

For instance, on the 9   of April, when Trump announced a 90-day delay on the tariffs, the S&P 500 rose a whopping 9.52%, marking the biggest single-day gain since 2008, beating even the impressive COVID recovery period. Similarly, indexes rose on the 12   of May when tariffs for China were reduced.

Another sentiment in markets is the movement towards safe-haven assets. Gold and the Japanese yen were particularly high performers, as traders and investors flocked to avoid turbulence.

Trump and the 50% EU tariffs

The 50% tariff was announced on Friday, 23rd of May, to be implemented on the 1st of June. While the EU viewed it as a negotiation hardballing tactic, Trump outlined several concerns about trade negotiations with the entity.

• Trade Deficit Concerns: Trump signified a notable trade imbalance, with a $250 billion annual deficit with the EU. As the reason, he cited unfair trade processes that put the US at a disadvantage.
• Perceived Unfair Trade Practices: Notably, the barriers Trump mentioned included value-added taxes (VATs), digital service taxes (DSTs), and regulatory hurdles. He believes that these affect US companies disproportionately, emphasising an adverse effect on the tech sector in particular.
• Stalled Negotiations: The US president also made public his frustration with trade negotiations. He described them as unproductive and noted that they were going nowhere. It is likely that the tariff warning was used as a means to expedite negotiations, rather than being an actual policy.

Earlier in the month, the EU drafted a $108 billion retaliatory tariff plan, as a measure if negotiations go awry. As expected, officials weren’t happy with Trump’s tariff plan, many viewing it as strongarming.

European Commission President Ursula von der Leyen seemed poised to achieve a friendlier deal. In a separate conversation, she noted that the EU has also prepared a zero-for-zero tariff deal, aimed at bolstering trade relations between the two giants.

Markets were unfond of the announcement.

EU markets

• STOXX Europe 600 Index: fell 1.5%.
• Germany’s DAX: declined by 2.3%.
• France’s CAC 40: dropped 2.8%.
• Italy’s FTSE MIB: slid over 2%.
• Spain’s IBEX 35: also fell more than 2%.
• UK’s FTSE 100: experienced a smaller decline of 0.2%.

US markets

• Dow Jones Industrial Average: fell 0.6%.
• S&P 500: declined by 0.7%.
• Nasdaq Composite: dropped 1%.

Tariffs Delayed to 9   of July

On the day following the initial announcement, Trump made a correction, pushing back the date of the Tariffs. This came after the US president and Ursula von der Leyen had a conversation. Trump noted that he felt the EU was more prepared for serious negotiations, prompting him to create more leeway.

Leyen reinforced her sentiment that the US-EU trade relationship was one of the most important in the world, indicating a willingness to cooperate and find a mutually beneficial solution. However, EU figureheads remain skeptical about future negotiations, indicating that caution is needed. EU Trade Chief Maroš Šefčovič noted that he intends to consult leaders in vulnerable industries, particularly car manufacturers.

Once again, markets were elated to see a delay in tariff procedures. The STOXX 600 negated some of its previous loss, measuring a 0.9% step-up. Germany’s DAX grew by 1.7%, and France’s CAC 40 expanded by 1.3%. US indices also reacted well, reinforcing that investors are against tariff policies in general.

What does this imply for traders and investors?

Tariff talks have been going on for a while, and while tariffs themselves are unpredictable, market reactions aren’t. As a rule of thumb, when steeper tariffs get announced, the affected entity and US markets retract. The bigger the entity, the more significant the retraction.

However, due to Trump’s somewhat erratic behaviour, it’s crucial for traders to follow news closely. Announcements come out of seemingly nowhere, and stocks and indices react sharply, requiring timely action from traders.

For those who want to circumvent the volatility and uncertainty, steering towards safe-haven assets like forex pairs including the Japanese yen may be a good idea. Gold in particular has had a fantastic showing, reaching record highs during the turbulent period. Until further negotiations happen, the trade relations between the US and EU remain up in the air.

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