EU recalibrates response to US tariffs after ‘black day’ for markets

Good morning. European markets had been savaged yesterday as Donald Trump’s commerce conflict received very actual. Right here, I unpack the carnage, whereas my colleagues in central Europe report on an agricultural virus inflicting border closures.

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First blood

It was, mentioned the EU’s commerce tsar, a “black day”, as monetary markets reeled from the sheer scale of US President Donald Trump’s commerce conflict.

“The most important paradigm shift in global trading patterns since the second world war”, intoned EU commissioner Maroš Šefčovič, not a person susceptible to exaggeration or novice dramatics.

Context: Trump imposed 20 per cent tariffs on all EU imports final week, on high of beforehand introduced commerce measures. Commerce is a European Fee competence; Brussels negotiates on behalf of the EU’s 27 member states.

Yesterday’s market response was brutal. Germany’s headline Dax index shed 4.1 per cent; 4.8 per cent was wiped off France’s Cac 40. Polish markets crashed so onerous that the Warsaw Inventory Change suspended buying and selling.

However extra ache remains to be barrelling down the pipe. If unchecked, Poland’s commerce minister Michal Baranowski warned, the hit to development would guarantee “a loss of jobs and wealth”.

“We remember what happened many, many years ago, many decades ago when real trade wars start”, he added, darkly.

Europe’s response is three-dimensional.

First: retaliation. EU member states will tomorrow vote on what Šefčovič described as “a robust list of countermeasures” on US imports which are set to return into power in every week’s time.

Officers stress the intention is to not escalate a conflict that “will only hurt both sides”. As a substitute, the purpose is to carry Trump to the negotiation desk: the second a part of the response.

Ursula von der Leyen, Šefčovič’s boss as European Fee president, talked yesterday of a doable “good deal” round “zero-for-zero tariffs” — maybe the primary time in years that she and Elon Musk have been in settlement.

However at the same time as they work on these two fronts, EU and nationwide officers are concurrently grappling with a 3rd: how one can soften the blow on the true financial system.

European Central Financial institution policymakers warned the Monetary Occasions of a “negative demand shock”, which might hit employment, development and shopper sentiment.

Germany’s incoming chancellor Friedrich Merz was extra direct. The financial scenario was “dramatic and threatens to deteriorate further”, he mentioned.

Market watchers now count on the ECB to reduce charges subsequent week, after which reduce maybe twice extra by the top of the yr, to stave off a possible recession within the Eurozone.

Fiscal coverage is sort of sure to observe swimsuit: Some EU governments are already speaking about the necessity to present money to the toughest hit industries, and France has dusted off its Covid-era job furlough help scheme.

It’s grim on the market, and getting grimmer.

Chart du jour: Cleansing up

Due to wind and photo voltaic, clear power crossed the 40 per cent international threshold final yr for the primary time because the Forties, in line with a brand new report by think-tank Ember printed as we speak.

Border beef

Foot-and-mouth illness has returned to central Europe, prompting a number of international locations to shut border crossings, write Raphael Minder, Marton Dunai and Mercedes Ruehl.

Context: After an outbreak in Germany in January, a number of cattle farms had been hit by the illness final month on each side of the Hungary-Slovak border, in an space additionally near Austria. The illness is very contagious and may be deadly for livestock, however not for human beings.

Final month, Hungarian authorities ordered the culling of greater than 3,000 cows within the northwestern county of Győr, close to Bratislava and Vienna.

Slovakia introduced yesterday it will reintroduce border controls “after an assessment that some steps taken by Hungary are insufficient”, Slovak atmosphere minister Tomáš Taraba mentioned. Some smaller crossings may very well be closed altogether, based mostly on additional threat evaluations. Austria had already closed 21 crossings with Hungary and two with Slovakia.

Taraba additionally accused home Slovakian agriculture corporations of failing to behave swiftly, forcing the police to step up inspections that now additionally embody drone surveillance of farms.

“I am opposed to compensation going to the big companies that have brought this on themselves by their laxity,” Taraba mentioned.

Hungary’s farming minister István Nagy mentioned his nation had seen no new circumstances. Talking at a border crossing level the place the federal government arrange a co-ordinating publish, he added that work continued to forestall the unfold of the illness, however excessive winds had been complicating the efforts.

Austrian authorities mentioned that no circumstances had been detected in Austria thus far although the scenario “remained tense”, and contingency planning was underneath approach in case the illness was detected. 

What to observe as we speak

1. Nato secretary-general Mark Rutte visits Japan.

2. Irish commerce minister Simon Harris travels to the US.

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