October may well see the opening of a new front in the U.S.-initiated trade wars, with Europe being the target this time. Indeed, in preparation for launching tariffs aimed at Europe the new mantra in official Washington seems to be that on many trade issues Europe is worse than China.
We would not agree with that assessment, given the deep, longstanding and mutually beneficial commercial and industrial interests the United States shares with Europe. Regardless, the odds on the U.S. introducing tariffs on many European goods are rising rapidly.
This Would Be a Different Trade War
The trade wars have not hit the U.S. economy all that hard -- with the main impact on the whole economy being a substantial reduction in business investment and little impact on consumer spending. But certain sectors of the U.S. economy have been hit quite hard. In this respect, the opening of a trade war front with Europe will be quite different than the war with China. U.S. farmers paid a very high price and bore the brunt of the U.S.-China trade war as China dramatically curtailed purchases of soybeans and other agricultural products from the U.S.
With a new European front, the damage to the U.S. may hit the huge German automobile plants in Alabama and South Carolina. Sizable assembly and battery plant expansions are in the planning and building stages, and U.S. tariffs may derail these plans, costing many future jobs. Also, the busy ports of Mobile and Charleston that enable the automobile supply chains may see a sizable hit to their business.
German Cars, French Wine
Yet again, the overall hit to the U.S. economy will be relatively mild, compared to the damage a U.S.-Europe trade war might do to Germany, in particular. The German economy appears to be entering a recession, led in no small way by its auto industry. So, the timing of the start of a U.S.-Europe trade war would suggest much more damage to Europe than the U.S. overall.
Just for the record, if the U.S. puts tariffs on French wine, as has been threatened, the economic impact will be negligible. One unintended consequence, however, might well be a further depreciation of the euro versus the dollar, as financial capital in Europe heads for safer havens in North America or emerging markets in Asia. Watch out for parity between the euro and the U.S. dollar should the trade war turn especially bitter.
Learn more about trader tools and resources for E-mini S&P 500 futures.
(This article is sponsored and produced by CME Group, which is solely responsible for its content.)
Read more stories like this on OpenMarkets. And for trader tools and resources visit: https://activetrader.cmegroup.com