It’s quite ironic to think that Donald Trump’s protectionist and insular economic policies should have such a significant impact on the world’s financial market, but this betrays the influence of the U.S. as a global economic power.
As a result of this and the fall-out from a 15-year legal battle between aircraft manufacturers Boeing and Airbus, the U.S. could be poised to hit selected EU products with a punitive of up to 25% tariff at the end of this week.
This is unless an amicable agreement is reached, which is unlikely with Brexit negotiations expected to reach their conclusion this weekend.
But what form will the tariffs take, and how will they impact on the volatile USD/EUR exchange rate?
What Form Will the Tariffs Take?
The Trump Administration was finally granted permission to impose these punitive tariffs earlier this week, with European aircraft, French wine and cheese and Spanish olive oil likely to bear the brunt of the sanctions.
Aircraft will face a 10% tariff from 18th onwards, whereas all other commodities will bit hit with a heftier 25% penalty.
In total, the tariffs are likely to be applied to up to $7.5 billion worth of European exports annually, with the World Trade Organisation (WTO) having ruled on a long-running complaint over historic subsidies given to Airbus as part of the EU’s trade practices.
More specifically, the Trump administration has claimed that U.S.-based plane maker Boeing has incurred significant losses as a result of these practices, with the tariffs introduced to help the company recoup some of this capital.
Appraising the Impact of These Tariffs
Whilst these punitive tariffs are designed to penalise firms in the EU, they’ll also force American businesses and customers to pay more on imported goods from Europe.
This means that tensions are likely to be escalated on both sides of the Atlantic, with the EU and other nations across the globe already bristling at Trump’s economic policies and the prospects of a U.S-China trade war.
As for the EUR/USD pairing, this is expected to decline in value once the tariffs have been imposed. Despite the potential impact on U.S. firms, Oanda has reported that the Euro remains under even greater pressure given the effects of Brexit and weak economic sentiment within the Eurozone.
Make no mistake; the Euro has already begun to lose ground against the Dollar, with the combined impact of a mixed industrial production data report and the rising likelihood of a Eurozone recession expected to be exacerbated by the new tariffs.