Trump Plays Golf Then Offers EU Tariff Concession: Should Traders Take Him Seriously?

After promising “90 deals in 90 days” only one formally signed and executed arrangement – a tariff hike on trade with the UK – seems to have been completed in time among several announcements of new agreements. 

Investors were then supposed to be monitoring 1 Aug as a key milestone to see whether major trading partners would open up markets to American companies while paying higher levies to send their goods to the US. That date, however, seems fluid, as does the 12 Aug deadline for talks with China, which is now reportedly being extended for another 90 days. Hmm...

It's cool, for example, that the Chinese New Year occurs on different dates in the Gregorian calendar, or that the timing of Eid varies depending on centuries-long, respected cultural customs. But why do important global trade developments now follow a schedule that blows in the wind based on the White House’s whims?

Trump has said he has written to 150 countries to require better access for US goods or else new tariffs, and he even threatened the EU – the US’s largest trading counterparty – with a 30% levy.

Crying wolf

But after the 2 April “Liberation Day” caused the worst market sell-off since Covid, investors quickly grew tired of Trump’s regular jibes against longstanding American trade partners and even countries which have little to no international commerce with the US. (None in the case of the penguin-dominated Heard and McDonald Islands). 

Crypto traders planning for the northern summer may not necessarily be preparing for a large portfolio rebalancing on 1 Aug. Figures on US inflation, jobs, growth and consumer confidence, and central bank communications may have a bigger impact.

The 10% agreement made with the UK was not even a traditional “trade deal,” in comparison with the meaty documents that typically take months or years of constructive negotiation to produce. Other accords with the dynamic southeast Asian economies of Vietnam (20% tariff, down from 46% threatened) and Indonesia (19%, down from 32%) were struck well below the opening levels for negotiation.

All this has reinforced usage of a derogatory nickname coined by a Financial Times columnist in April: “TACO Trump”, or “Trump Always Chickens Out”. Traders have even established the “TACO trade” whereby you sell an asset when Trump announces a high new tariff, then buy it back cheaply after it drops, presuming that he will back out of the threat and the price will recover.

TACO meal deal

More recently, he has backed out of the 30% EU tariff. Trump’s announcement of the new rate by posting a copy of a 12 July letter to European Commission Ursula von der Leyen on social media over a weekend was met with muted reaction when stock markets reopened, with European shares almost unchanged for the day. For the French, it might have been a rude start to the annual 14 July Bastille Day public holiday, except the euro hardly budged against the dollar. A week later, FX and equity markets were again unfazed by the prospect of the EU preparing retaliatory measures.

Crypto coins advanced as reports emerged later in July that an accord might be struck at 15%, although once again European equities saw only a modest increase in value in the hours of trading that followed an announcement of an agreement between Washington and Brussels. 

Even that communication was awkwardly positioned, with Trump playing a full 18 holes with his son, Eric, on his private golf course in Scotland before finally sitting down with Commission President Ursula von der Leyen in front of the cameras. Nothing wrong with playing golf, or with political leaders taking time out to exercise, but while the most critical point in the transatlantic relationship is looming is it usual that the US President should be out on the fairway for several hours discussing family business?

The following day, 28 July, saw the Stoxx Europe 600 benchmark of equities slip 0.2% and a 1.3% decline in the euro against the dollar – the single currency’s worst day in more than two months.

Beggar thy neighbour

Canada and Mexico have also been in the firing line for tariffs of at least 30% – the latest moves of aggression by the US against its neighbours. And Trump has targeted steel, aluminium and copper importers, as well as auto-part makers, in his initiative to create leverage for the US and distract from other economic and social challenges.

The proposed increase in US-EU tariffs would stifle transatlantic trade and depress EU GDP (gross domestic product), most economists have agreed, as well as risking inflation. A full-blown transatlantic trade war would be miserable for businesses and many consumers either side of the pond. 

However, if anybody really believed what the President said and wrote about these matters, assets from stocks to gold to crypto would be whipsawing each time a statement appeared. After choking on the extraordinary spectacle in April, during which Trump commentated on each country in a series of inaccurate assessments, investors are behaving as if many of his statements will not actually come to fruition.

Much as the US Federal Reserve has adopted a “wait and see” approach to monetary policy amid the chaos, traders are not preparing as if 1 Aug will be implemented.

The crypto market has enjoyed healthy rebound since April, with Bitcoin (BTC), XRP and BNB soaring to new all-time highs and Ether (ETH) on the ascendancy too.

Actions over words 

Then again, traders can’t afford to totally ignore the threats – Trump does sometimes do what he says he will do. Furthermore, by 24 July, the US had generated more than $124.3 billion in tariffs since the beginning of the year, a 131% year-on-year increase, according to Politico, thanks in part to levies already introduced. Prime ministers and trade officials celebrating “deals” are basically celebrating that they’ve been slapped, not kicked, in the face even though their economies will be worse off as a result.

For those political leaders who do feel the need to react, they might take a leaf out of von der Leyen’s book, as she seems to have mastered the dialogue with Trump. 

“You’re known as a touch negotiator and dealmaker,” she oozed in front of the media at Trump’s private golf course in Turnberry, on the west coast of Scotland, according to a published copy of her remarks. “This could be the biggest deal each of us have ever struck.”

Trump’s hyperbolic interjections might have stolen the headlines from his Brussels counterpart, but the emerging lessons for traders and investors are to examine whether trade “deals” have substance and commitment and to gauge their impact over time, rather than react directly to Trump’s words.