Trump’s Tariffs and The Bigger Forex Picture

Trump’s Tariffs the EU’s Fragile Unity and the Bigger Forex Picture

Understanding the EU and tariffs with forecasts for the EurUsd and UsdJpy by the Savvy Trader

Trump’s Tariffs and The Bigger Forex Picture

President Trump’s renewed frustration with the European Union has resurfaced in the form of aggressive trade policies. The latest one is a threat to impose 50% tariffs on EU imports. To some, this move may seem like a calculated strategy. But in reality, it reflects a misunderstanding of how the EU operates and the challenges of negotiating with a fragmented bloc.

The Complexity of the EU: 27 Voices, One Bureaucracy

Unlike a centralized nation-state, the EU is composed of 27 member states, each with its own interests, trade dependencies, and political agendas. This makes collective bargaining difficult, particularly when it comes to trade negotiations with a powerful counterpart like the U.S.

In this scenario, Trump’s frustration is understandable but perhaps misguided. Rather than facing a single negotiating partner, the U.S. confronts a bloc with different trade relationships with America:

• The Netherlands imports more from the U.S. than any other EU country.
• Germany, on the other hand, is the largest EU exporter to the U.S.
• Other players like France, Ireland, and Slovakia have varying levels of engagement with American trade.
• The rest? They contribute relatively little to the transatlantic economic exchange.

Could Trump’s Strategy Backfire?

Trump, a self-styled dealmaker who often frames negotiation like a poker game, typically prefers one-on-one power dynamics by bluffing his way to leverage. But attempting to negotiate directly with individual EU countries would be not only be futile under EU law but also dangerously destabilizing.

If such backchannel negotiations were to occur, they could trigger internal discord within the EU, potentially threatening its very fabric. Would that lead to the breakup of the European Union? It’s an extreme scenario but not an impossible one.

A Breakup of the EU? Historical Lessons and Modern Risks

When I spoke at Harvard in 1999, I made a long-term prediction: the EU would eventually disintegrate. At the time, I believed it might take centuries. Today, I’m not so sure.

The EU has faced multiple existential tests:

• The Greek debt crisis
• Political instability in Italy
• The shock of Brexit
• Ongoing challenges with integrating Eastern Europe after the fall of the Berlin Wall

Each time, the EU has managed to “put a finger in the dike”, containing the crisis just barely.

So, can the EU withstand this latest geopolitical salvo? I still believe a breakup is a remote possibility in the near term. But the structure of the Union where power lies heavily in the hands of the original six members could eventually become its pressure breaking point.

Market Implications: EurUsd and the UsdJpy Trade

In the short-to-medium term (the next 12–18 months), I believe the “Sell USD” trade continues to be viable, particularly against the yen. My long-term thesis remains intact:

• A move down in UsdJpy toward 128–132
• Followed by a potential surge above 200

Such a move could be triggered by a collapse in EurUsd, stemming from EU instability.

Before any such dramatic breakdown occurs, however, we may first see:

• A test of 1.1746 in EurUsd (historically significant as the ECU-to-euro conversion rate)
• Then rallies toward 1.21–1.22, and possibly 1.26–1.27

Only after these levels are breached should traders start considering a doomsday scenario for the euro.

EurUsd Monthly Chart  (added by Global-View)

UsdJpy Monthly Chart (added by Global-View)

Trump’s tariff war with the EU may seem like a replay of previous tactics, but it taps into deeper structural vulnerabilities within Europe. While a breakup of the EU is unlikely in the short term, mounting pressure—political, economic, and strategic—could eventually lead to seismic shifts.

The Savvy Trader is a long time and highly valued ,emeber of the global-view.com community

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