European Union Exports to the United States Hit From Two Sides
While Trump's tariffs have been the main point of discussion for a good while on the economic side - for good reason - economy is complex and it's not the only thing to keep an eye on.
I noticed last week when Trump announced the last series of tariffs that the next day Euro gained some value compared to USD... That triggered my warning bells because, maybe counter-intuitively, that isn't good for the European Union, and I'll explain why.
But first, let's see a wider context, because one-day price change doesn't mean anything in the long term. However, we have a trend since Trump came to office. Here it is:
USD lost 5.54% value to EUR on a YTD basis. Note that on the same trend we find GBP, and JPY, among the top currencies, but none other. Not even CAD or MXN, which are the currencies of top "bashing" candidates of Trump discourses, Canada and Mexico. CNY either (Chinese Yuan), but that is a "controlled" currency, and it's expectable to see at least a neutral if not favorable evolution there (it was neutral this year).
Also, for context, note that USD traditionally gained value compared to other global currencies in recent years. Which, let's admit, wasn't great for the US economy (unless you ask a US consumer spending abroad).
Now let's get back to the EU, which just got some hefty tariffs set for exports into the US, and a currency that appreciates compared to USD. What a combination, huh?
It's true, if you hold some EUR savings, or if companies hold some EUR cash on hand, that's a good thing, but overall, that's a bad thing for the European Union, because it affects EU's exports in USD, on top of the tariffs set for imports to the US.
That's because for products fully manufactured in the EU, all prices are in Euro so the price of the product if you were to sell it for USD grows if USD devalues compared to EUR.
If imports in USD are also used to manufacture the product (assuming no extra tariff), the price could be cheaper (depending on transportation costs too), but also means the EU's trade balance grows more toward imports, becoming more dependent on them.
Sure, if we look at the all-time-chart between USD and EUR (since the 1980s), what we have now is a blip in the chart:
Also, all-time, USD gained almost 37% to EUR.
But if the current trend continues, coupled with the tariffs, it won't be good at all for European exports, even if it doesn't seem like much at this point.
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Higher prices for EU goods in the US now, plus the euro getting stronger, this is not great at all for selling stuff across the ocean. Tariffs, stock market, and billionaires making moves. That's what happens
Not only across the ocean but in all USD trades across the world... if the USD keeps depreciating.
precisely and as accurate as possible
This recent trends in currency rates and the tarries policies may have significant implications for the EU economy as apprectmiation of EUR may make US exports more expensive for US buyers and could potentially hurt EU businesses
Tariffs will have an effect for sure. If the USD depreciation continues, it will have its toll too on EU's exports.
Yeah if euro gets too strong then export will be too expensive for us market
Hopefully that won't happen.
The trend might just continue for a while. I think Trump ideas to strengthen the US economy is why we have all these disparities. However do you see these other countries doing retaliation increases sheating their swords anytime soon?
We've seen retaliatory tariffs already. Probably if things go the wrong way, we'll see some flexing on the currency side too at some point.
Well it feels annoying, but the retaliation will continue, I will tryin to imply how far or low long the retaliations we last, as we already know Trump to be a stubborn man
In the context of a currency war, how do you see the role of stablecoin in strengthening the value of USD?
They will have a significant impact, in time. On the other hand, US has an enormous debt, and I see it more as a way to help with that than in a currency war.
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Good point to take into account. On the other hand, European exports are already expensive and not very price-sensitive. Ozempic, ASML machines, Louis Vuitton bags, holidays in Paris, that small German family firm which makes customized surgical instruments - you can't simply replace them with an identical competitor.
Yes, but those are pinpoint markets. There are bigger markets that will be affected.
I never considered it, but I think this trend will continue. I don't think Trump will stop tariffs, and I think things will just continue to get worst when it comes to the European exports.
Unless they negotiate a deal, that's probably what will happen.
this is the currency war. now war will be fought like this.
We had currency wars before. Even tariff wars. Things won't be pretty.
Some of us think the trend will continue, it may take time for the world to adjust to this new trade reality. Some countries like China are retaliating, which introduces more uncertainty on how things may pan out in the near future.
Yeah, we may need to adjust to a different reality.