Ongoing trade negotiations between the European Union and the administration of Donald Trump are entering a decisive phase, and their outcome could significantly impact financial markets. By July 9, the parties must reach an agreement to avoid drastic tariff increases — otherwise, the majority of EU exports to the US could face 50% tariffs. In 2024, the value of EU exports of cars and car parts to the United States amounted to €52.8 billion, making this sector the largest beneficiary of transatlantic trade. Additionally, the EU sold steel and aluminum worth €24 billion to the US, primarily from Germany, France, and Italy.
The EU is prepared to accept a 10% universal tariff on many goods but demands preferential terms for strategic sectors such as pharmaceuticals, semiconductors, alcohol, and civil aviation. A key objective for the EU is to secure exemptions from the current 25% tariffs on cars and parts and 50% tariffs on steel and aluminum, which, in their current form, threaten the competitiveness of European industry.
The European Commission views the US proposal as slightly unfavorable but still considers accepting it as a compromise that would allow for a temporary agreement and continuation of negotiations after July 9. At the same time, Brussels is preparing for the possibility of talks breaking down — in such a scenario, it has a ready package of retaliatory measures including tariffs on American goods worth €21 billion, such as soybeans, poultry, and motorcycles, as well as additional tariffs on products worth €95 billion, including Boeing airplanes, American cars, and bourbon. Moreover, the EU is considering export controls and restrictions on access to public procurement.
Possible scenarios include an agreement with moderate imbalances, a further extension of talks, or a complete breakdown, which would trigger a full escalation of the trade war. Such escalation could introduce significant volatility to financial markets, leading to a weakening of the euro, increased risk premiums for industrial companies and the automotive sector, and lower valuations for firms tied to transatlantic trade. Investors are watching developments with concern, as uncertainty about the negotiation outcome may drive heightened risk aversion, stock market volatility, and increased demand for safe-haven assets such as US Treasury bonds and gold.
Author: Krzysztof Kamiński – OANDA TMS
