Traditionally, December is a quiet and calm month for the markets. Investors have one eye on the Christmas holidays, when the markets come to a virtual standstill. Still, it’s anything but quiet at the U.S. Trade Department, as trade officials seem to be busy with trade agreement everywhere one looks.
Earlier this month, the U.S. and China announced that they had agreed to a limited trade agreement, known as Phase 1. This is the first major breakthrough, after two and a half years of a bitter trade war between the world’s two largest economies. Later this week, the U.S. House of Representatives is expected to approve the US-Mexico-Canada agreement, which replaces the NAFTA free-trade deal between the three countries. The Senate will likely ratify the accord into law in January.
Now, the Trump administration has set its sights on Europe, or more specifically, the European Union. Robert Lighthizer, the chief U.S. negotiator in the negotiations with China and with Canada and Mexico, appears to be taking the same hard-line approach which the Trump administration showed in the U.S-China and USMCA rounds of negotiations. Lighthizer said that the U.S. trade relationship with Europe was “very unbalanced” and warned that the U.S. was prepared to escalate tariffs against EU members.
The U.S. slapped a ‘light’ tariff on $7.5 billion worth of EU products in October, as allowed in a WTO ruling. The Trump administration has raised the rhetoric, and if things get nasty, the U.S. could slap tariffs on imports of European automobiles and automobile parts, which could have a severe impact on the European auto industry. This could have negative repercussions for the euro and European stock markets, such as the German DAX.
Adding insult to injury, the U.S. is expected to start trade talks with the U.K. shortly after it leaves the EU at the end of January. With Boris Johnson enjoying a good relationship with Trump, and neither leader having much love for the EU, the U.S. could well give the U.K. preferential treatment over the EU.