US-EU trade deal should be doable but will take time – Nordea Markets

Tuuli Koivu, Research Analyst at Nordea Markets, suggests that their baseline forecast is that the trade tensions between the US and the EU will not escalate and expects that the common economic interests will encourage both parties to settle the trade policy issues.

Key Quotes

“We see it as a positive risk for companies’ confidence and growth outlook especially in Europe that the US and the EU come up with a solution which excludes a possibility for a sudden increase in tariffs on cars and their parts.”

“While we do not expect much from G20 meeting, the recent worsening of the global and the European growth outlook could increase the motivation to reach a compromise. We expect a positive market reaction whenever the trade deal is announced. However, the size of the impact of course depends very much on the content: while we see a small chance that a new deal would lower some EU tariffs on US goods, it is more likely that some new trade restrictions will be implemented. However, an end to the current uncertainty would improve European growth prospects, in particular.”

“In the G20 meeting, one of the major themes to follow will be whether the US continues to build a common block against China. In the USMCA agreement, there is sentence giving the US a possibility to withdraw from the agreement if Canada or Mexico was to start free trade negotiations with a non-market economy ie China. According to media reports, there is a tendency in Washington to have a same type of deal with the EU.”