European markets, in particular, are watching closely to see the effects of the new 15% tariffs. These tariffs were a key component of the recently finalized US-EU trade agreement. These tariffs are huge. They fall well short of positions at 30-50% that former President Donald Trump threatened just the other day. Investors and policymakers alike are still reeling from the announcement. They are trying to assess its possible impact on the Euro Area economy, with special attention to the recent hawkish economic data.
It is no wonder the Euro responded so quickly last week. In the last few weeks it even dropped below the 1.14 line value against the US dollar. Yet the currency mirrored somewhat rattled back on Friday, a sign of both stabilization and November dollars 0. Yet, in spite of this volatility, there is still a sense of optimism, albeit quite cautious, about economic activity across the Euro Area. Just last week, the Q2 GDP report was released, with an annualized growth rate of 1.4%, surprising analysts by coming in higher than expected. Moreover, July’s inflation unexpectedly posted a 2% increase, again beating expectations and signaling the stickiness of consumer prices.
As negotiations unfolded, European officials fought fiercely to establish a baseline levy in the neighborhood of 10%. Even then, their goal was clearly to win larger concessions from the U.S. Despite these bold proposals, the final agreement failed to go far enough. Many economic actors are now wondering what the effect of these new tariffs will be on the economic performance within the Euro Area. They’re asking if the region will be able to weather these storms.
With markets still focused on the finer detail of the trade deal reached this weekend, all eyes will soon pivot to the first significant economic data. The first substantial indication of how these tariffs may affect the Euro Area economy is expected on August 23, when purchasing managers’ indices (PMIs) will be released. Analysts will be particularly eager to understand how companies are adapting to the changed trade environment.