Economist Vicky Pryce discusses the ongoing implications of the US-EU trade agreement, noting that while some sectors may benefit from the pledge, others such as automotive and chemicals still face uncertainty.
00:00Let's talk to Vicky Price. She's an international economist and a global business Europe regular.
00:05Great to have you back on the programme.
00:06So what indications are you seeing here that this isn't the end of the story for the markets?
00:12Well, it's not the end of the story anyway in terms of the agreement, because it's only a framework agreement.
00:17We're going to get a few more details, and I think by August 1st.
00:20So we'll hear a little bit more about some of the detail, and a lot of the detail is still to be sorted out.
00:25And remember, even if we get more of the detail, then it needs to be passed by the various national governments.
00:30And what you have already been indicating is that some, particularly France, are not very happy with what has been said so far.
00:38And it may take quite some time for it to become a proper agreement.
00:42And there is a question as to what happens to trade in the meantime.
00:46Does it happen automatically that everything gets reduced, let's say from 25% to 15%, which has been the case in some sectors, or do we have to wait?
00:54I think there are all sorts of things there that need further sorting out.
00:58And the markets have reflected it as well as concerned about where it leaves the balance, really.
01:03I mean, if we look at what's happened during the trading day, energy, defence, infrastructure sectors,
01:08they seem to be benefiting from the EU's pledge, being reflected in stock gains.
01:14But then you look at automotive, look at chemicals, steelmakers.
01:19What's your outlook for those stocks now?
01:21Well, those particular stocks where there is still uncertainty, I mean, if you look at cars, for example,
01:27and we've seen German car companies in particular being negatively hit,
01:31there is no doubt that where the balance lies, which I was talking about before,
01:35is in favour of the US and actually against the EU.
01:40So it used to be the other way around, and it's now moved decidedly the other way.
01:44So they are suffering.
01:47We still need to get a lot more detail on pharmaceuticals, but you are quite right when you're suggesting that perhaps some other areas are happier.
01:55And that is because some of the uncertainty has gone.
01:57And although there will be a hit on growth in the EU, it's not going to be as big as before.
02:02So those sectors that do depend on growth and on extra spending such as infrastructure may find that they are indeed likely to be doing better
02:10because some of that uncertainty, maybe something in relation to interest rates, will also have been clarified a little bit more.
02:17What about what's happening on currency markets?
02:19Are they being more circumspect about this framework, perhaps reflecting deeper concerns about Europe's leverage?
02:27Well, yes, I mean, it would be very interesting to look at the euro and see how it's doing.
02:33I think it's probably going to reflect on the fact that there is a bit more certainty in the short term.
02:40But in terms of the way in which growth is going to go, I'm suspecting that perhaps there will be some weakness for the moment.
02:46We've seen a little bit of strength there, certainly in early trading.
02:51But then that will perhaps be affected by people sitting down and thinking a little bit more about what the implications are.
02:57And a lot of that will depend on what happens to interest rates ahead.
03:01And I think that's going to be an interesting one because there is no doubt that tariffs in the U.S.,
03:05even though perhaps they're less than was expected overall, are going to add to inflation there.
03:11And we're going to have to wait for crucial data that's going to come out of the U.S.
03:14But you're soon to tell us this.
03:16And in the EU, we're probably going to have lower inflation.
03:19So that, yes, certainty should help the euro up to a point.
03:24But if we're thinking about lower inflation possibly and also lower interest rates, then we should be the other way around.
03:30Where it will end up being is a question mark.
03:33So we're looking out for data.
03:34But also, as you mentioned, this is a framework.
03:36So we're still waiting on some of that detail.
03:38And Trump has form, doesn't he, instead of tinkering around the edges of these agreements.
03:44What do you think it's going to take to really cement investor confidence?
03:49Well, there are some sectors where there is still huge uncertainty, I'm afraid, such as the pharmaceutical sector.
03:54And there is also a bit of a disagreement depending on who you listen to, whether you listen to Trump,
04:00whether you listen to the commission about whether pharmaceutical products are exempt,
04:05which ones might be exempt and whether there is still the possibility of considerably higher tariffs there.
04:11And also, if there is concern from some countries and there is a delay, I mean, it is entirely possible,
04:18given earlier form, that we might have changes happening from the U.S. side as well.
04:22Less willingness, perhaps, to compromise in some areas.
04:25And also, of course, what's going to happen in other sectors?
04:27Because obviously they're going to be some give and take.
04:30And the U.S. had already been pressurized in terms of its own online digital tax that it intended to impose,
04:38has already, in fact, started imposing, which will affect, of course, U.S. companies, tech companies.
04:44So whether there is more compromise there as well, what the U.S. is going to offer at the end is still up in the air.
04:51Vicky Price, thank you very much for your insight.
