Global Markets on Edge as Europe Moves to Suspend Approval of US Trade Deal

According to insiders familiar with the international trade affairs of the European Union, stock markets across the globe have responded negatively to news that the European Parliament’s approval of a US-EU trade agreement reached in July 2015 will not be ratified. A formal announcement will take place on Wednesday, October 24, 2015, in Strasbourg, France.

If the Parliament goes ahead with their decision, it would escalate tensions between the United States and Europe by exacerbating an already volatile situation that has been making headlines recently, as tensions have increased with President Donald Trump making threats of increased tariffs over the weekend regarding the acquisition of Greenland.

This renewed friction increases the concern among investors regarding the prospect of an escalating trade war between the two regions, which may include retaliation from Europe for the tariffs imposed by the United States.

On Tuesday, both American and European markets reacted to the announcement with significant declines in stock prices, with European markets seeing their second consecutive day of declining stock prices. The Dow Jones Industrial Average fell by over 1.7%, the S&P 500 index fell by over 2%, and the Nasdaq composite lost approximately 2.4%.

Asian markets experienced mixed results on Wednesday, with major Japanese and South Korean indexes declining slightly, and moderately positive movements in the Hong Kong and Chinese stock markets.

Safe-haven assets continue to attract investor interest as the price of gold has surpassed $4,800 (2,770) an ounce for the first time, while the price of silver has eased slightly after breaking $95 an ounce for a record high on Monday. Both gold and silver experienced substantial gains over the last year due to increased tensions, globally speaking.

While US dollars had a relatively solid day against its major counterparts, it stabilized after a drop of about half of an ounce, which was the largest decrease recorded on a single day since early December.

In terms of trade tensions, an agreement had been established between Brussels and Washington regarding trade tariffs at Trump's Turnberry Golf Club, or "Golf Club." The agreement allows most European products to now have tariffs at 15% instead of the 30% proposed during President Trump's Tariff Day initiative. In exchange for the decrease of US tariffs, Europe agreed to enhance their investments into the US and to enhance support for US exports.

Nevertheless, this deal has not yet been ratified by the European Parliament.

That process was thrown into doubt on Saturday, when Manfred Weber, a senior German MEP, said approval was “not possible at this stage” following Trump’s renewed tariff threats linked to Greenland. Bernd Lange, chair of the European Parliament’s international trade committee, echoed that stance, saying there was “no alternative” but to suspend the deal.

“By threatening the territorial integrity and sovereignty of an EU member state and using tariffs as a coercive instrument, the US undermines the stability and predictability of EU–US trade relations,” Lange said. His committee must sign off on the agreement before it can proceed to a final parliamentary vote.

“There is no alternative but to suspend work on the two Turnberry legislative proposals until the US chooses cooperation over confrontation,” he added.

The suspension raises fresh questions over whether the EU will revive plans to retaliate against the US. Last year, the bloc outlined potential tariffs on €93bn ($109bn, £81bn) worth of American goods in response to Trump’s earlier measures, before shelving the proposal as negotiations continued.

That pause expires on 6 February, meaning EU levies would take effect the following day unless the deadline is extended or the new deal is approved.

French President Emmanuel Macron has been among those urging the EU to consider its response, including deploying the bloc’s anti-coercion instrument often dubbed a “trade bazooka.” Speaking at the World Economic Forum in Davos, Macron said Washington’s “endless accumulation” of tariffs was “fundamentally unacceptable,” particularly when used to pressure territorial sovereignty.

American response
US officials have cautioned Europe against retaliation. At the Davos forum, Treasury Secretary Scott Bessent urged European leaders to remain calm and keep an open mind.

“Sit back. Take a deep breath. Do not retaliate,” he said. “The president will be here tomorrow, and he will get his message across.”

Commerce Secretary Howard Lutnick and US Trade Representative Jamieson Greer were more direct, warning that any retaliation would be met with a response. “When countries follow my advice, they tend to do okay. When they don’t, crazy things happen,” Greer said, according to Agence France-Presse.

The US has expressed its anger and dissatisfaction over Europe’s perceived slow approval process on the deal due to ongoing disagreements between Europe and the US regarding both technology and tariffs on metals.

The stakes in this case are very high because the United States and the European Union, a multi-national trading block consisting of 27 nations, are not only their largest trading partners to date (i.e., in 2024 alone, the total amount of goods and services traded between them reached an estimated €1.6tn ($1.9tn, £1.4tn)) representing approximately 33% of total global trade, according to data published by European sources but also one of the largest suppliers of energy to the United States.

Since the announcement of the tariffs by President Trump last year, Europe has responded with a series of threats of retaliation. Ultimately, most countries opted for negotiation, with only China and Canada following through. Canada later rolled back most of its tariffs in September, citing concerns about damage to its domestic economy.

In Davos on Tuesday, Canadian Prime Minister Mark Carney urged so-called middle powers to unite against what he described as an emerging “might-makes-right” global order. “When we negotiate bilaterally with a hegemon, we negotiate from weakness,” he said. “This is not sovereignty it is the performance of sovereignty while accepting subordination.”

Adding to the uncertainty is a looming US Supreme Court decision on the legality of several tariffs imposed by Trump last year, a ruling that could further shape the trajectory of the trade dispute.