The EU is keen to enter trade talks. The White House Press Secretary announced that President Trump shared a new tariff plan with the EU.

New Tariff Announcement

Beginning 1 August 2025, a 30% tariff will apply to all EU imports unless a trade deal is made beforehand. About 150 countries were informed of new tariffs of 10% or 15%. However, the EU and Mexico are facing a 30% tariff. This decision comes from the trade imbalance between the U.S. and the EU, along with the high tariffs the EU levies on cars and industrial products. These tariffs are described as a matter of national security.

Possible Market Reactions

There is a warning that more tariffs could arise if the EU decides to retaliate. We expect that the main market reaction to the tariff letter will be increased volatility. The uncertainty of a potential trade war is likely to cause large price fluctuations, especially as the August 1, 2025, deadline gets closer. Derivative traders should think about strategies to benefit from this market turbulence. Given Leavitt’s remarks on the EU’s willingness to negotiate, any news from Brussels will spark strong market reactions. European equities, especially in the German auto and French luxury goods sectors, face significant downside risks due to their reliance on American consumers. In 2023, the EU exported over €500 billion worth of goods to the U.S., showing substantial economic risk from this situation. In the currency market, the EUR/USD pair will be a key measure of these trade tensions. If negotiations break down, the Euro may weaken significantly, as the 30% tariff would hurt the Eurozone’s economic outlook. We expect higher demand for options that protect against a drop in the euro’s value compared to the dollar. Mr. Trump’s claim of national security will not shield U.S. companies dependent on European supply chains. Sectors like aerospace and pharmaceuticals might see increased costs and disruptions, affecting their profit margins. We recommend buying protection for U.S. industrial and healthcare stocks with significant European exposure. We foresee that broad market volatility measures, such as the VIX index, will rise and stay elevated. During the peak tariff escalations with China in mid-2019, the VIX soared over 60%, illustrating how markets respond to such uncertainties. Long positions on VIX futures or call options on volatility-tracking ETFs are direct ways to capitalize on this outlook. Create your live VT Markets account and start trading now.

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