Dice, escalation or understanding? What happens now

And now what will happen, after that Donald Trump has rekindled the Commercial war with Europethreatening 50% duties on all the import from the EU from 1 June, with a post published on Friday on his social truth? The stakes are very high: worth more than 851 billion euros, equal to the interchange between the United States and Europe in 2024. The EU exports goods for 531.6 billion in the USA And it matters for 333.4, with a surplus of 198.2 billion. But in the services it is in deficit for 108 billion. The total balance, however, remains positive for about 90 billion. «Trump always raises the mail, then portrayed, then relaunches stronger. He is an aggressive merchant who uses the threat as a negotiating leverage. It is not diplomacy, but intimidation », he explains to Courier Dante Roscini, professor of International Economy at the Harvard Business School and former business banker (Goldman Sachs, Merrill Lynch and Morgan Stanley). « In the markets the idea that Trump in the end always gives up always passed, but in the meantime he creates chaos. »

The role of the markets

April 2, renamed « Liberation Day »Trump, complete with a scoreboard, had announced mutual duties of 20% against Europe (but 25% on cars, steel and aluminum), except for a week later, to stop turbulence on the markets, and halve the level at 10% for 90 days to find an agreement. Until the last turn, caused by the irritation for the slowness of European negotiators.

« The negotiations on trade are very complex, instead there is a coarse simplification here, » says Roscini. But there is also incompetence. The scoreboard with which Trump presented himself to indicate the calculations of mutual duties on April 2nd, they were all wrong And they disregarded the principles of the basic economy such as, for example, the (incorrect) statement that each country must have a commercial balance with each other. Or the claim to relaunch Use manufacture with rates: Apple will never find the workforce to competitively produce the iPhone in the United Statesin spite of the threat of duties of 25% on smartphones assembled abroad. « They look like a group of amateurs and the president behaves like a bully, » Roscini assesses.

The problem is that America is an economy of over 30 thousand billion dollars and Europe is the main outlet market. So its threats, real or only negotiating bluff, have a very strong impact on everything: markets and companies. « It is an unprecedented macroeconomic experiment, » warns Roscini. «Companies cannot plan with this uncertainty: duties at 10, 20 or 30% completely change their business models. The only certainty is uncertainty. But the uncertainty discourages investments, destabilizes supply chains. The chains of the value are thus integrated between the USA and the EU that in this commercial war lose everyone ».

What scares most is that even if the duties will stand at 10%, as for the United Kingdomthe only country so far to have signed a commercial agreement with the united sati, it will mean returning to the levels of 1945. And this will imply « less growth on the two banks of the Atlantic ».

The Federal Reserve is also trapped. The duties could restart American inflation, at 2.4% in April. The inflation expectations are growing: The duties create pressure on the prices of imported products, but also the weakening of the dollar contributes. However, there are also unfruption forces, such as the drop in oil prices, caused by international dynamics. Therefore It is difficult to predict what the final impact will be.

Fed and interest rates

Analysts for this year expected two cuts in interest rates, currently 4.5% compared to 2.4% in the euro area. But according to the president of the Fed of Chicago, Austan Goolsbee, Trump’s words have increased uncertainty and made a cut of rates less likelyalready expected in the June meeting. «Everything is always on the table. But I have the impression that, as far as I’m concerned, the bar to act is a little higher, « he declared on Friday in an interview a CNBC. While the president of the Fed of Atlanta, Raphael Bostic, now believes that « rates this year is likely this year », not two as expected, due to the commercial war.

In this context in Europe many voices have already risen for try to lower the tones and find a fair solutioneven meeting American requests, especially from the business world. Among these, that of Patrone of LVMH, Bernard Arnaultor those of the car producers, who have the largest market in the United States. For Roscini, however, « Europe can do nothing but resist, because it cannot kneel in front of Trump, denying its principles », such as the requirements on food safety and medical devices, he says believing that a bully must be treated by bully.

«Trump puts everything in the same cauldron: VAT, standard, certifications, regulatory procedures, taxation on technological companies. Look for a sort of wholesale change ». Instead it doesn’t work like this. « Brussels has no choice: he must respond hard, but on the basis of the principles », he insists. Certain, Trump could return to his steps. The bet (or hope) is that on foreign trade weighs the interests and pressures of industry, finance and American markets. It has already happened. Tomorrow Wall Street is closed for the Memorial Day. Tuesday will be seen how the markets will react.