The US yesterday, 1 July added pressure on Europe by issuing “a supplemental list of products that could potentially be subject to additional duties”, just days after reaching a trade truce with China.
The move is likely to be a retaliatory measure driven by a long-running dispute over aircraft subsidies on large civilian aircraft, which could result in the US hitting the European Union with $4 billion’s worth of tariffs. Similar tit-for-tat threats of tariffs on aircraft, tractors and food have been floating around for well over a decade but have ramped up under the Trump administration.
The US and China seemed to have made a breakthrough at the G20 summit over the weekend, with Trump tweeting that talks had gone “better than expected” and potentially signalling an end of his tariffs spree. However, this move may not be enough to relieve pressure on the Federal Reserve to cut rates and stimulate the US economy struggling for growth.
Fed Vice Chair Richard Clarida said yesterday the US economy was “in a good place” but “uncertainties have increased along several dimensions”. Manufacturing data released yesterday showed the sector expanded but at its slowest pace since October 2016.
Markets now seem convinced the US central bank will cut rates for the first time since the financial crisis, despite Fed Chair Jerome Powell repeatedly saying the Fed makes decisions independently from both financial markets and the White House. However, some analysts suggest that an interest rate cut could raise markets’ expectations for even more easing in the future and undermine financial stability.
In other news, the Reserve Bank of Australia (RBA) cut interest rates for the second month running, lowering its official cash rate to a record low of 1 per cent. A number of central banks around the globe have recently shifted to a more dovish policy stance amid rising concerns over decelerating global growth and the prospect that trade disputes with China, Australia’s primary export market, will drag on for some time.
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