The escalating trade tensions between the United States and European Union are reshaping global markets, with new tariffs and retaliatory measures creating uncertainty for investors. While much of the focus has been on goods, David Barrett, CEO of EBC Financial Group (UK) Ltd., recently highlighted in an interview with CGTN, a critical dimension of this conflict—the service sector. Here’s a breakdown of the latest developments and their implications for traders navigating this volatile landscape.
The 25% Tariff Shockwave
On 4 March 2025, the United States implemented a 25% tariff on goods from Mexico and Canada, followed by plans to impose similar tariffs on EU imports. The EU has responded with warnings of countermeasures targeting politically sensitive US industries like whiskey, denim, and motorcycles.
Market Insight:
- Commodities: Tariffs on steel and aluminium are expected to increase costs for manufacturers in both regions. Traders should monitor price movements in metals like aluminium and steel, which could impact broader industrial sectors.
- Equities: Consumer goods industries may face disruptions as tariffs raise production costs and reduce competitiveness.
Beyond Goods: The Service Sector’s Role
While goods trade dominates headlines, David Barrett pointed out that services play a pivotal role in this conflict. In 2023:
- The US had a €155.8 billion trade deficit with the EU in goods.
- However, it maintained a €104 billion surplus in services such as finance, tech, and consulting.
- When combined, the total US-EU trade deficit shrinks to €51.8 billion.
This imbalance gives the EU leverage in the service sector, potentially targeting US tech giants with regulatory measures or tariffs.
Market Insight:
- Tech Stocks: Companies like Apple and Microsoft could face scrutiny if the EU leverages its service trade deficit as a bargaining chip.
- Currency Volatility: The EUR/USD pair may react sharply to trade policy shifts affecting services.
Lessons from Past Trade Wars
Trade wars are not new, and history offers valuable lessons for understanding potential outcomes. During Trump’s previous term, the EU imposed $3 billion in tariffs on American whiskey and jeans to target politically influential industries in the US.
Market Insight:
Safe-Haven Assets: Gold and silver may see increased demand as uncertainty drives investors toward stability. Traders should use tools like Bollinger Bands to identify entry points during price fluctuations.
Sector-Specific Impacts: Luxury goods remain vulnerable to tariff escalations, while agricultural products may face reduced competitiveness.
Key Sectors to Watch
Several industries are poised to be significantly impacted by this trade war:
- Automotive: Tariffs on steel and aluminium will increase costs for US automakers while reducing their competitiveness against international players like China.
- Agriculture: EU tariffs on US agricultural products such as corn and soybeans could disrupt supply chains, affecting livestock industries reliant on animal feed imports.
- Luxury Goods: European luxury brands may face higher costs due to tariffs on raw materials sourced from the US.
Market Insight:
Traders should track stock indices tied to these sectors, such as the Nasdaq Composite (tech-heavy) or European indices like the DAX (luxury goods).
Currency Volatility Amid Trade Tensions
Currency markets are likely to see sharp swings as trade policies evolve:
- The EUR/USD pair is particularly sensitive to tariff announcements and retaliatory measures from both sides.
- The Canadian dollar may experience volatility due to its reliance on US trade partnerships impacted by tariffs.
Market Insight:
Use moving averages to identify trends in currency pairs affected by trade tensions while mapping out support and resistance levels for precise entries.
Political Dynamics Will Shape Outcomes
David Barrett emphasised that politics will play a critical role in determining how long this dispute lasts. With inflationary pressures mounting in both regions, neither side can afford prolonged economic uncertainty without facing severe consequences.
Market Insight:
Traders should remain alert for policy announcements or negotiations that could shift sentiment across markets.
Preparing for Market Shifts
The US-EU trade war is creating uncertainty across commodities, currencies, and equities, but traders who stay informed can find opportunities amidst the volatility:
- Monitor safe-haven assets like gold during periods of heightened uncertainty.
- Track currency pairs such as EUR/USD for volatility driven by policy changes affecting goods and services trade.
- Pay attention to sector-specific impacts in industries such as automotive, agriculture, tech, and luxury goods.
By understanding how tariffs influence market dynamics and using technical analysis tools effectively, traders can position themselves strategically in these turbulent times while preparing for potential shifts in global economic power dynamics.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.