What's going on?
A trade war between the US and Europe may escalate shortly, with the former likely to introduce import taxes (a.k.a. tariffs) on $8 billion of products – and the latter likely to fight back.
What does this mean?
French airplane-manufacturer Airbus currently receives subsidies from Europe, but the US thinks they’re illegal and cost it $11 billion a year. Airbus’ American rival Boeing – which had its wings clipped this year – has recently lost out on several major orders to its arch-nemesis, likely exacerbating the issue.
The US has tabled retaliatory tariffs – targeting planes as well as luxury goods, champagne, and spirits – and according to reports on Thursday, the World Trade Organization will this month give the US permission to do just that. Europe has already promised to hit back with tariffs of its own – and you don’t need to look far for an idea of how that’ll go…
Why should I care?
For you personally: Sorry, things will get more expensive.
Tariffs make it pricier to import products, and companies typically pass those costs on to you by way of higher prices. That’s especially true of products that can’t be easily replaced, like French and Italian luxury goods. The US may end up, therefore, “importing inflation” – vindicating the Federal Reserve’s view that it needn’t cut interest rates further. The impact of tariffs on an already-weak eurozone, meanwhile, might encourage investors to heed Barclays’ advice and ditch risky stocks for safer bonds.
Zooming out: The US can make trade deals.
The US and Japan inked a trade deal of their own on Thursday, primarily focused on agricultural products. On the one hand, it may show investors that the US is indeed willing to strike trade deals – which bodes well for China negotiations. But on the other, this fresh agreement with its third-biggest trading partner only goes part way to making up for the trade America lost when it withdrew from the Trans-Pacific Partnership.