1. The 25% Tariff Impact: A Shockwave Across Markets

On 4 March 2025, the United States implemented a 25% tariff on goods from Mexico and Canada, followed by plans to impose similar tariffs on EU imports. This move has triggered a chain reaction, with the EU preparing retaliatory measures targeting politically sensitive US industries such as whiskey, denim, and motorcycles.

Market Insight:

- Commodities: Tariffs on steel and aluminium are expected to raise costs for manufacturers in both regions. Traders should watch for price increases in metals like aluminium and steel, which could impact broader industrial sectors.

- Equities: Industries tied to consumer goods and luxury items may face disruptions as tariffs increase production costs and reduce competitiveness.

2. A Shift Beyond Goods: The Service Sector’s Role

While much of the focus has been on goods trade, David Barrett, CEO of EBC Financial Group (UK) Ltd., highlighted the importance of services in this conflict. In 2023, the US had a €155.8 billion trade deficit with the EU in goods but maintained a €104 billion surplus in services such as finance, tech, and consulting.

Market Insight:

- Tech Stocks: The EU could leverage its service trade deficit by targeting US tech giants with regulatory measures or tariffs. Traders should monitor companies like Apple and Microsoft for potential impacts.

- Currency Markets: The EUR/USD pair may experience volatility as trade policies shift focus to services.

3. Lessons from Previous Trade Wars

History provides valuable lessons for understanding potential outcomes of this dispute. During Trump’s previous term, the EU imposed $3 billion in tariffs on American whiskey and jeans to target politically influential industries in the US.

Market Insight:

- Safe-Haven Assets: Gold and silver may see increased demand as uncertainty drives investors toward stability. Traders should consider using technical tools like Bollinger Bands to identify entry points during price fluctuations.

- Sector-Specific Impacts: Luxury goods and agriculture remain vulnerable to tariff escalations. Companies reliant on US exports may face reduced competitiveness.

4. Key Sectors to Watch

Several industries are poised to be significantly impacted by this trade war:

- Automotive: Tariffs on steel and aluminium will increase costs for US automakers while reducing their competitiveness against international players like China.

- Agriculture: EU tariffs on US agricultural products such as corn and soybeans could disrupt supply chains, affecting livestock industries reliant on animal feed imports.

- Luxury Goods: European luxury brands may face higher costs due to tariffs on raw materials sourced from the US.

Market Insight:

Traders should track stock indices tied to these sectors, such as the Nasdaq Composite (tech-heavy) or European indices like the DAX (luxury goods).

5. Currency Volatility Amid Trade Tensions

Currency markets are likely to see sharp swings as trade policies evolve:

- The EUR/USD pair is particularly sensitive to tariff announcements and retaliatory measures from both sides.

- The Canadian dollar may experience volatility due to its reliance on US trade partnerships impacted by tariffs.

Market Insight:

Use moving averages to identify trends in currency pairs affected by trade tensions while mapping out support and resistance levels for precise entries.

6. Political Dynamics Will Shape Outcomes

David Barrett emphasised that politics will play a critical role in determining how long this dispute lasts. With inflationary pressures mounting in both regions, neither side can afford prolonged economic uncertainty without facing severe consequences.

Market Insight:

Traders should remain alert for policy announcements or negotiations that could shift sentiment across markets.

Turning Uncertainty into Opportunity

The US-EU trade war presents challenges but also opportunities for traders willing to adapt their strategies based on evolving market conditions:

1. Monitor safe-haven assets like gold and silver during periods of heightened uncertainty.

2. Track currency pairs such as EUR/USD for volatility driven by policy shifts.

3. Pay attention to sector-specific impacts, particularly in automotive, agriculture, tech, and luxury goods.

4. Stay informed about political developments that could influence market sentiment.

By staying nimble and informed, traders can navigate these turbulent times effectively while positioning themselves for potential gains amidst global economic shifts.

Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.