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Economy | US

A Possible End to Trade Disputes?

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US President Donald Trump and European Commission President  Jean Claude Juncker announced last month that they would begin negotiations for a zero-tariff zone for non-auto industrial goods, apart from agreeing not to advance other tariffs during the negotiation process – which presumably removes the threat of new auto tariffs for the European Union (EU).

 

Trump and Juncker also agreed to work towards undoing previously announced steel, aluminum and retaliatory tariffs announced this year.

 

While last month’s meeting between Trump and Juncker to settle trade disputes appears largely positive, Citi analysts caution that there are many pitfalls for negotiations between the two parties – which could result in a breakdown reminiscent of the May US-China trade framework agreement that Trump abandoned.

 

However, there are several reasons for Citi analysts to believe this announcement could be more durable that the earlier US-China trade framework agreement. Firstly, Trump announced this latest agreement himself – whereas the negotiation with China was led by Treasury Secretary Steven Mnuchin.

 

Secondly, tremendous US business sector and political backlash has been building against recent escalating trade tensions – tariff conflicts with Europe, China, Mexico and others logically need to be narrowed if the US were to avoid negative economic consequences.

 

Thirdly, Trump should see strong incentives to win back European support in confronting China on intellectual property trade – something he heavily hinted at during his joint announcement with Europe. If this negotiation with the EU proves successful, this could provide an example for others in striking successful deals with the US and set a precedent for the North American Free Trade Agreement (NAFTA) negotiations.

 

Last month’s joint trade deal announcement with Europe raises the probability of positive outcomes for ending trade disputes even beyond the EU. This could result in a positive turn for global markets as new trade agreements that lower or preserve current tariffs could result in a significant relief rally for many beaten-down equity market segments across the world.

 

 

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