Trade policy: Trump began last week by describing the EU as a “foe” – Nomura

Analysts at Nomura explained that trade tensions remained elevated this week as the Commerce Department held an open hearing on the Trump administration’s Section 232 investigation into imports of autos and auto parts.

Key Quotes:

“Industry representatives and foreign government officials overwhelmingly argued that autos do not pose a national security threat to the United States and that tariffs on those products would cause disproportionate harm to the US economy. We expect the Commerce Department to release their final Section 232 report within the coming weeks, consistent with statements by Secretary Ross and President Trump. Despite the pushback during the hearing, we believe it likely that Commerce will rule affirmatively that imports of autos and auto parts threaten to impair the national security, providing President Trump with options including tariffs and quotas to restrict auto imports. In this context, the Washington visit by EC President Juncker next week to discuss USEU trade will be important. Various news reports indicated that Juncker is prepared to discuss a potential deal between the US and EU to lower auto tariffs in an effort to reduce the likelihood of President Trump imposing new tariffs under Section 232 authority.”

“Note that President Trump began this week by describing the EU as a “foe” of the US because of its trade policies. In addition, today he accused the EU, and China, of manipulating its currency to undermine US competitiveness. The result of Junker’s visit to Washington next week should provide additional clarity as to the final outcome of the autos investigation. While a deal next week appears unlikely, due to the complexity of WTO rules among other things, a positive statement from President Trump acknowledging progress could offer markets some reassurance as to the next steps in the investigation.”

“With respect to the US-China trade dispute, President Trump emphasized on Friday his preparedness to impose tariffs on all imports from China as progress on diffusing trade tensions between the two countries stalls. With China offering a more restrained response to the USTR list of 10% tariffs on an additional $200bn in imports, tensions will likely remain elevated as the USTR process unfolds. Finally, NAFTA talks will resume in some form next week as Mexico’s economy minister Ildefonso Guajardo travels to Washington. While Trump administration officials have recently touted progress with Mexico in terms of trade negotiations, we remain skeptical that a renegotiated NAFTA will emerge from the chief negotiators before end-2018.”