EU Begins Accepting Serious Consequences From U.S. Economic and Trade Position

The major industrial economies of the European Union (U.K., France, Germany) have been the beneficiaries of a decades-long system which allowed one-sided benefits -via tariffs- against U.S. products.

With President Trump demanding reciprocity, and with less industrial purchasing from China, the EU is now starting to contemplate a dramatically different economic future.

(Reuters) – Persistent weakness in euro zone manufacturing raises the risk of other sectors of the economy being infected, extending the currency bloc’s recent downturn, European Central Bank policymaker Yves Mersch said on Monday.

“The longer the weakness in manufacturing persists, the greater the risk that other sectors of the economy will be affected by the slowdown as well,” Mersch told a conference.

“Risks to the growth outlook remain on the downside overall.” (read more)

I think it is safe to say the majority of American voters have no idea how deeply the global economy is dependent on systems of trade that are based on the U.S. trade deficits.

The $500+ billion annual trade deficit the U.S. was running with China was the primary vault Beijing used to purchase industrial goods from the EU.  With President Trump reversing the outflow of dollars into China, the EU economy has been hit hard.

Simultaneously, President Trump has begun the process of confronting EU tariffs against U.S. products that have existed since the 1948 Marshall Plan was enacted.  Under the Trump administration USTR Robert Lighthizer and Commerce Secretary Wilbur Ross have put the EU on notice that U.S. trade agreements will no longer accept the one-sided benefit; the current U.S. position is reciprocity without compromise.

Against both standards of diminished Asian purchases and diminished protectionism for their collective economy, the EU is entering into a phase of severe economic consequence.

The social spending within the EU is heavily reliant on their ability to capture U.S. wealth through exports (China) and trade tariffs against the U.S.   As the EU central bank is starting to realize, a diminished influx of money into their system will likely have significant consequences that extends far beyond the simple lost revenue from global industrial purchases.

Combine that financial reality with a significant loss in revenue from the U.K. via Brexit; and then overlay the generous social payments to the mass influx of migrants; and you can see a storm cloud appearing that seems unavoidable.

NATO General Secretary Jens Stoltenberg is coming to the White House this week, and we can be sure his visit is directly related to this EU reality.

Interesting times…