Are we talking about zero?  Zero tariffs that is.  In this week’s episode of the US versus the World trade saga, the US and European Union announced that there will be no further escalation of trade tariffs between the two parties and that they agreed to work in the future towards “zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods.”  Granted, there is no change on the standing tariffs for steel and aluminum but it did put a stop to proposed tariffs directed by the US towards the European auto industry in exchange for buying American agricultural products (like soybeans) and liquid natural gas exports.  Light on details overall, it is essentially a “deal-to-make-a-deal” announcement.  That said, it is a first step to what sounds like a more amicable discussion between long-standing allies on a key economic concern.  We are still mindful that the ebb and flow of current political narratives tends to be two steps forward, one step back but the steps are heading in a good direction for free-traders.

The stated goal of “zero” matches comments made by Trump’s lead economic advisor (and former CNBC talk show host) Larry Kudlow.  In an interview last week on his former employer’s network, Kudlow said clearly that Trump would really rather have no tariffs at all but will use them as needed to break down what he sees as barriers to a level playing field.  It is a different approach than prior Presidents who used words more than implemented policy to address perceived inequities. The strategy carries risk; some may call it a game of chicken.  The “win” in Europe focuses the gaze back on China who so far has been unmoving especially on intellectual property rights which is at the heart of the conflict with the US. This was demonstrated again this week as China did not approve the acquisition of American technology company Qualcomm of Dutch company NXP which required approval from several regulatory bodies around the world. Consequently it killed the deal.  China was the lone holdout.  China has also been letting its currency depreciate which is another way to counter balance the tariffs in place and proposed.  Emboldened by the recent trade win, expect the US rhetoric towards China to heat up and market volatility to stay.