President Donald Trump meets with European Commission President Ursula von Der Leyen at the World Economic Forum, Tuesday, Jan. 21, 2020, in Davos, Switzerland.
Evan Vucci | AP Photo
Investors should “buckle up” for more volatility as the potential for a trade war has not completely dissipated despite U.S. President Donald Trump’s delay of rolling out 50% tariffs on the European Union, analysts warn.
Trump announced on Sunday that he had agreed to push the rollout of the punitive import duties back to July 9, following a call with EU Commission President Ursula von der Leyen.
The president had initially called for a 50% tariff on EU goods to begin on June 1. He accused the bloc in a social media post of being “very difficult to deal with,” and said trade negotiations with the EU were “going nowhere.”
European stocks rebounded Monday morning, moving into positive territory, after previously sinking on Friday in response to Trump’s fresh tariffs threats.
Von der Leyen said in a post on X over the weekend that the EU was “ready to advance talks swiftly and decisively.”
“The EU and US share the world’s most consequential and close trade relationship,” she said. “To reach a good deal, we would need the time until July 9.”
An EU official with knowledge of trade talks with the U.S. told CNBC that European Trade Commissioner Maros Sefcovic was due to speak with his U.S. counterparts on Monday.
But while Trump’s announcement of the delay has granted the two parties some more breathing space, market watchers warned Monday that a lot remains at stake.
Shock tactics
Berenberg Chief Economist Holger Schmieding told CNBC that the six-week window until tariffs kick in was probably not enough time to “settle all detailed questions” – but he argued it should be sufficient to put the framework of a trade agreement in place.
“It should be enough to get an agreement like the one between the U.S. and the U.K.,” he said on CNBC’s “Europe Early Edition” on Monday.
“[It] is basically a matter of political will, and that depends a bit on the U.S. side,” he added. “If they do have the political will, we should really be able to have such an agreement with, probably in the end, a 10% tariff from the U.S. on all EU imports, hardly any EU retaliation, and [scaling back] a few sector-specific things … with some of the details to be finalized after July 9.”
However, Schmieding noted that if the end result were a 20% or 30% blanket tariff on EU goods, “the EU would have no choice” but to impose “significant countermeasures” against the United States.
Labeling Trump “an interesting negotiator,” Schmieding argued that the president often tries to shock those with whom he’s negotiating into agreeing to concessions. But the EU, he said, was unlikely to capitulate to these tactics.
“We just have to stay calm, and from the European side, we just have to negotiate – we have to remember from the European side that our market is big, that we do matter in economic terms to the U.S. quite a lot, not just vice versa,” he added. “So these negotiations should be negotiations among equals. The European Union is not a region which can be scared into just throwing in the towel.”
‘Unclear’ what Trump administration wants from Europe
Guntram Wolff, senior fellow at Bruegel, told CNBC that despite the extension of the tariffs deadline, “massive uncertainty” remained.
“This uncertainty is bad for business, it’s bad for consumers, and frankly it’s an unnecessary step in the negotiations,” he told CNBC’s “Europe Early Edition.”
“It’s very unclear what exactly the U.S. President wants,” Wolff added. “That’s the biggest obstacle at this stage, that in the negotiations the EU has made offers, has made proposals, but it doesn’t really know what the president wants.”
According to Wolff, the EU is “playing it rather well.”
“The U.K. has given in on all kinds of demands, China is the other extreme, [it] has really escalated … to a point where the U.S. had to blink, had to give in,” he explained. “Europe sort of tries to take a middle path.”
The EU does have capacity to retaliate should massive tariffs be levied on its exports by the Trump administration, Wolff added, pointing to the importance of its pharmaceutical products to the U.S., and the potential for retaliatory measures to be implemented in the services sector.
“But the EU so far has decided not to do it, really to keep a climate of de-escalation,” he said. “But at the end of the day, that might not be enough now.”
‘This ride’s far from over’
Naeem Aslam, chief investment officer at London’s Zaye Capital Markets, told CNBC on Monday the tariffs delay had sparked a “tentative risk-on rally” – but like Wolff, he cautioned that much remained at stake.
“Looking ahead, the EU-US trade dance is a high-stakes tango, with July 9 as the next flashpoint,” he said in an email.
“The EU’s dangling phased tariff cuts and “mutual respect” talks, but Trump’s America-first bravado could turn negotiations into a slugfest, rattling supply chains and fanning inflationary flames.”
Aslam added that sectors like tech and industrials were particularly “braced for whiplash.”
“Markets will hang on every tweet and trade talk whisper, with investors betting on whether this delay is a genuine olive branch or just Trump reloading for a bigger tariff showdown,” he said. “Buckle up; this ride’s far from over.”
– CNBC’s Silvia Amaro contributed to this report
