EU trade commissioner Cecilia Malmstrom has targeted signing a trade deal on industrial goods with the US by the end of October. The announcement is a refreshing change after a recent flurry of headlines underlining rising trade tensions between the US and the EU, especially over respective subsidies to Airbus and Boeing. Worries over trade also appear to have contributed to the recent weakness of industrial output, especially in Europe. Today's ZEW economic sentiment indicator registered a further decline in the current situation reading to 5.5 in April, from 11.1 last month and 45.3 at the end of last year.
Given the damage trade tax uncertainty is causing the global economy, we believe progress on trade talks could reverse the recent soft patch in growth. But EU and US negotiators will have to overcome several obstacles.
- France has objected that EU rules prevent trade deals with countries that have not signed up to the Paris climate accord.
- The US would prefer an agreement that includes agricultural goods. But the EU has concerns about health and quality standards, making this unlikely.
- Recent tensions over Airbus and Boeing could impede a deal. Both the US and EU have recently threatened to impose more tariffs after the WTO found that each had provided unfair support for their regional aerospace champion. Although this dispute is taking place within the WTO mechanism so far, reducing the danger of a tit-for-tat spiral of tariff increases, it could set a poor tone for broader trade talks.So, while we believe global trade negotiations are likely to avert a renewed round of retaliation – either between the US and EU or the US and China – risks remain. We prefer to see concrete progress and more signs that global growth is recovering before adding to risk in our tactical asset allocation.
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