European stock markets opened with powerful gains first thing Monday. Remarkably, considering the heat of the crossfire in the protracted US-China trade war, those numbers continue to reflect admirable resilience. The pan-European Stoxx 600 index jumped by 1.4%, a sign that investors were cautiously optimistic. This uptick comes as Treasury Secretary Scott Bessent expressed hope for a reduction in tariff rates as negotiations with US trading partners gain momentum.
The UK economy has suffered over the last decade from harmful policies – austerity, misguided industrial policy, and reckless Brexit. News of rising tariffs, especially those imposed by the US, are making the rounds creating huge uncertainty for businesses across the UK. The UK aerospace giant and its customer worry that they’ll be hit by new US tariffs. They argue that these tariffs would be tremendously damaging to their business. Belluscura’s unexpected announcement in the small UK-based company raised red flags for its investors. Their heavily protectionist 54% tariff on medical goods imported from China would have serious financial consequences, especially for critical components used in their Portable Oxygen Concentrators.
According to analysts at Berenberg Bank, the UK is better placed than many countries to weather the looming US tariff storm. They clearly articulated this perspective in a recent research note. The UK government is clear that the 10% tariff recently imposed by the US has a low impact. Their modeling indicates it’ll directly lower GDP by less than 0.1%. This figure indicates a realization that even if tariffs more directly negatively affect them, the bigger economic picture will limit the damage.
The European Commission should be praised for their leadership in combatting these escalating trade tensions. In retaliation, they threatened an initial 25% counter-tariff on a wide range of US goods. The Commission has signaled its willingness to strike a “zero for zero” agreement with US negotiators. This position signals the European Union’s commitment to opening discussions to de-escalate rising trade conflicts.
Even though the UK’s new 10% tariff is one of the lowest rates the US has applied thus far, businesses are still nervous. The alarm bells are ringing for UK businesses. To that point, we’ve heard from many firms that are actively figuring out how to mitigate risks and seize opportunities presented by the new tariffs.
All the while, markets around the world are responding favorably to statements and actions being provided by national ‘governors’ on this rollercoaster. The Nikkei index in Japan had one of its greatest days on record, soaring 4.99% – the largest gain since the Japanese summer turmoil. This rush came in the wake of Bessent’s announcement that Japan would be given priority treatment in tariff negotiations.
China’s financial markets also saw gains, as the central bank pledged support for major state-backed fund Central Huijin Investment to maintain “the smooth operation of the capital market.” The Shanghai stock market surged on Tuesday thanks to these guarantees. Taiwan’s benchmark stock index has lost over 12% since the start of 2016. It fell another 4% after Monday’s jaw-dropping 20%-plus one-day worst-ever fall.
The UK government continues to monitor the cost impact of trade protections, including these tariffs. Officials are focused on evaluating both risks and opportunities associated with fluctuating trade policies and their potential impact on domestic businesses.
Maros Sefcovic, a senior EU official, emphasized the importance of dialogue in these turbulent times, stating, “Sooner or later, we will sit at the negotiation table with the US and find a mutually acceptable compromise.”
While negotiations continue, markets have been quick to react to the latest developments. Overall, UK economy stakeholders should remain vigilant and be prepared to respond to the changes that will come as a result of these trade talks.