Will the US Open a Second Front in the Global Trade War?

Author: Gary Ashton

Estimated read time: 3 minutes

Publication date: 7th Oct 2019 11:08 GMT+1

When the global economy seems to be facing an uphill battle, the US is set to impose an additional $7.5 billion worth of tariffs annually on a range of EU goods on October 18th in response to illegal subsidies the EU paid to its airline manufacturer Airbus. According to a statement from the Office of the United States Trade Representative, the US will impose an initial tariff of 10% on large civil aircraft and a 25% tariff on agricultural and other products.

The announcement of a 10% tariff on aircraft prompted a plea from Delta Air Lines (NYSE: DAL) for “the US government and the European Union to negotiate a trade settlement to avoid tariffs that could raise the cost of its Airbus aircraft,” according to Global Flight. The statement continues, “Delta operates the second-largest Airbus fleet of any US carrier, only behind American Airlines. Data show that it has 297 Airbus aircraft in service, with another 246 on order, including 12 A350s and 31 A330s, which are produced and assembled in Europe and would be subject to the additional tariff.”

Sand in The Economy’s Gears

Many economists view a growing Trans-Atlantic trade dispute as the last thing the world economy needs now. If the US imposes additional tariffs on EU goods, it will come about the same time that the US is set to increase tariffs to 30% from 25% on about $250 billion worth of Chinese imports. President Trump delayed this increase once already to avoid coinciding with the 70th anniversary of Communist rule in China and causing potential embarrassment for China.

In the meantime, EU manufacturers are already facing US tariffs on steel and aluminium and the US could also hit the EU with tariffs on its cars and car parts in November 2019.

Widening US Trade Deficit

Despite a range of tariffs and other penalties intended to make imports more expensive, the US trade deficit widened to $54.9 billion in August, data from the US Census Bureau showed. China remained the top country of origin for US imports in August at $41.2 billion compared to $9.4 billion worth of exports.

Later this week, the US and China will meet in Washington, DC for yet another round of trade talks, but investors are holding out little hope that anything will come out of these talks. Neither side looks to be in the mood for compromise, but the US side seems more willing to negotiate when the US stock market is under pressure. Last week’s sharp market sell-off was partly due to concerns that the global economy is slowing. Another sharp selloff this week could prompt US negotiators to make some trade concessions. (For more see: Is the US Economy Really on the Verge of Recession?)

Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.