The US and EU are close to an agreement on 15% tariffs for certain goods. The US plans to eliminate tariffs on items like aircraft, spirits, and medical devices. At the same time, the EU may introduce similar levies to stop US tariffs from jumping to 30% on August 1. Additionally, the EU is preparing a possible EUR 93 billion package of retaliatory tariffs that could go up to 30% if no agreement is made before August 1. An EU diplomat informed Reuters that Brussels aims to vote on this package on Thursday.

Usage Of Anti-Coercion Instrument

Most EU member countries are likely to support using an anti-coercion tool if a US trade deal fails and US tariffs rise to 30%. Brussels is looking for concessions, but it is still unclear if the US will negotiate on items such as aircraft, spirits, and medical devices. The upcoming August 1 deadline is a key moment for trading volatility rather than direction. This situation offers a binary outcome, which often leads to increased options premiums due to rising uncertainty. Traders should focus on positions that benefit from sharp price movements, no matter the final decision. The impact will especially hit the specific sectors mentioned in the report. With over $40 billion in annual US-EU aircraft trade and billions more in spirits trade, businesses in these markets will experience notable stock price changes. Historical data from 2018 shows that American whiskey exports to the EU fell nearly 30% after retaliatory tariffs were implemented, highlighting the immediate economic effects.

Market Reaction And Trading Strategies

Broader market indices will also react strongly. We can look back to the US-China trade war for a similar scenario. During that time, the VIX index, which measures market fears, often surged above 40% around tariff deadlines and announcements. We anticipate a similar pattern for the VIX and its European counterpart as traders prepare for potential fallout from failing to reach an agreement. Given the uncertainty about whether the former president’s administration will compromise, strategies like long straddles or strangles on key sector ETFs or index funds are recommended. This approach allows traders to profit from increased volatility without having to predict the outcome of the negotiations. The EU’s vote on Thursday regarding the retaliatory package will be a pivotal event, likely leading to significant market movements. Create your live VT Markets account and start trading now.

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