The trade tensions between the United States and European Union are heating up, with new tariffs and countermeasures creating ripple effects across global markets. While much of the focus has been on goods, David Barrett, CEO of EBC Financial Group (UK) Ltd., recently highlighted in a CGTN interview, a critical yet underappreciated aspect of this conflict: the service sector. Here’s a listicle-style breakdown of what’s happening and what it means for traders.
1. The 25% Tariff Shockwave
On 4 March 2025, the United States implemented a 25% tariff on goods from Mexico and Canada, with plans to extend similar tariffs to EU imports. The EU responded swiftly, warning of countermeasures targeting politically sensitive US industries like whiskey, denim, and motorcycles.
Why It Matters for Traders:
- Commodities like steel and aluminium are expected to see price increases as tariffs raise production costs. Traders should keep an eye on these industrial metals for potential trading opportunities.
- Consumer goods industries may face disruptions, impacting equities tied to sectors like retail and manufacturing.
2. The Service Sector: The Real Battleground
While goods trade grabs headlines, David Barrett pointed out that services play a pivotal role in this trade war. 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 targeting US tech giants with regulatory measures or tariffs.
What Traders Should Watch:
- Tech stocks like Apple and Microsoft could face volatility if the EU shifts its focus to services as part of its countermeasures.
- The EUR/USD pair may experience sharp swings as trade policies evolve.
3. Lessons from Past Trade Wars
History offers valuable insights into how trade wars unfold. During Trump’s previous term, the EU imposed $3 billion in tariffs on American whiskey and jeans to target industries tied to influential US political groups.
What This Means for Traders:
- Safe-haven assets like gold may see increased demand as uncertainty drives investors toward stability. Use technical tools like Bollinger Bands to identify entry points during price fluctuations.
- Luxury goods and agricultural products remain vulnerable to tariff escalations, making them sectors to watch closely.
4. Key Industries at Risk
Several sectors are poised to feel the impact of this escalating trade war:
a. Automotive: Tariffs on steel and aluminium will increase costs for US automakers while reducing their competitiveness against international players like China.
b. Agriculture: EU tariffs on US agricultural products such as corn and soybeans could disrupt supply chains, affecting livestock industries reliant on animal feed imports.
c. Luxury Goods: European luxury brands may face higher costs due to tariffs on raw materials sourced from the US.
Trading Insight:
Monitor stock indices tied to these sectors, such as the Nasdaq Composite (tech-heavy) or European indices like the DAX (luxury goods).
5. Currency Volatility Amid Trade Tensions
Currency markets are particularly sensitive to trade policies:
- The EUR/USD pair is expected to experience sharp swings as retaliatory measures unfold.
- The Canadian dollar may also face volatility due to its reliance on US trade partnerships impacted by tariffs.
How Traders Can Prepare:
Use moving averages and support/resistance levels to identify trends in currency pairs affected by trade tensions.
What Traders Can Do Now
The escalating US-EU trade war is reshaping global markets, creating both challenges and opportunities for traders:
a. Monitor safe-haven assets like gold during periods of heightened uncertainty.
b. Track currency pairs such as EUR/USD for volatility driven by policy changes affecting goods and services trade.
c. Keep an eye on sector-specific impacts in industries such as automotive, agriculture, tech, and luxury goods.
By staying informed about market dynamics and using technical analysis tools effectively, traders can position themselves strategically during 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.
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