President Trump has intensified the trade war by including France, Brazil, and Argentina as his latest tariff targets. The fears of an escalation of these conflicts pushed the major indexes lower. The S&P 500 Index is down 1.1% in early trading today while the Dow Jones Industrial Average is down 1.4%.
Tariffs against France
On Monday, the US proposed tariffs of up to 100% on about $2.4 billion of French products. The proposed products include cheese, wine, and handbags. The US proposal comes in response to a French digital services tax that could affect large US technology companies such as Facebook (FB) and Google (GOOG). In July, France imposed a 3% tax on certain digital services companies. The country applied this tax retroactively to January 1, 2019.
On December 2, the Office of the USTR (United States Trade Representative) issued a report that described the French tax as discriminating against US digital companies. The report added that the French tax had been applied retroactively. This adds to the burden of US technology companies.
The French government has warned of retaliation if the US goes ahead with the proposed tariffs. This may further escalate the trade war. Notably, the USTR is contemplating the investigation of similar taxes by other European nations, including Austria and Italy.
The US earlier imposed tariffs on $7.5 billion of goods from the EU (European Union) in October. The trade tensions between the US and the EU don’t seem to be settling down anytime soon.
Tariffs on Brazil and Argentina
Trump also reimposed tariffs on steel and aluminum imports from Brazil and Argentina. He tweeted yesterday that Brazil and Argentina’s policies of currency devaluation are impacting American farmers.
Reiterating his long-standing belief, Trump also recommended that the Federal Reserve lower interest rates and adopt monetary loosening to support US exports. A stronger dollar negatively impacts US exports.
China trade deal worries
On the China front, Trump’s remarks referencing “no deadline” for reaching a deal has diminished hopes of an early resolution between the two countries. He went on to add that waiting until after the presidential elections next year could, in fact, be a better option.
President Trump is waging the trade war on several fronts at the same time. While that may be good for the US in some ways, we don’t believe the immediate impact on US businesses will be positive.