A U.S – China trade deal might be profitable for global markets but for the European Union, it is a matter of fear as it could be on the fall due to this.
Not to mention the smile it would bring on Trump’s face as he could focus on French wines or German automobiles.
Recalling from one of his tweets on Nov. 13th, he complained that while France could easily export wines to the United States, U.S. winemakers’ access to the French market was restricted.
“Not fair, must change”, he said on Twitter.
If we are to believe the analysts, the investors who are thinking of going to a trade accord through European Trade proxies, such as Germany’s export-heavy DAX index or the continent’s luxury names, should probably think twice.
Among those who have warned that a deal “could cost Europe dearly” if China substitutes a large part of its European imports for U.S. goods in a bid to appease the Trump administration, is Alicia García-Herrero, Chief Economist at Natixis for Asia Pacific, and a researcher at the Bruegel think-tank.
A Refinitiv analysis of company data shows that European-listed firms expect 456 billion euros ($521 billion) in total revenue from China in 2019, with luxury brands and automakers the most exposed sectors.
Vincent Deluard, global macro strategist at INTL FCStone, said that “Europe stands to lose the most when the truce expires on March 1st as China would surely dump billions of discounted goods on the old continent,” Deluard wrote.
“Imposing tariffs on European cars and reaching a deal with China could allow the Trump administration to claim two victories at the same time”. Added Deluard.
It is worthy to mention that in 2017, China exported goods worth 374 billion euros to the EU and 505 billion dollars to the United States.
Many investors fear the immediate relief of a China-U.S. deal could be swiftly followed by an awkward confrontation between the EU and its closest ally.
Fear of being next in line
While Germany takes the biggest share of the EU’s trade surplus with the United States, over 63 billion dollars in 2017, other European countries such as Ireland, Italy or France have a lot at stake if tariffs are imposed on European goods.
Analysts trying to decode the U.S. president’s strategy believe that a confrontation with the EU is a probable next step following the revamping of the North American Free Trade Agreement and his current efforts to slash the U.S. trade deficit with China from a record 375 billion dollars in 2017.
“We are next in the queue,” warned BNP Paribas’ chief economist William De Vijlder, adding that “the subject of the EU-U.S. trade negotiations has been under the radar up to recently but could resurface soon.”
Along with concerns about Brexit, disturbance in France, Italy’s populist government and May’s EU elections, the big European benchmarks are seen by many foreign investors as “not fit to invest in”, especially as growth slows.