Perceived trade imbalances have driven President Trump in recent months to threaten to impose tariffs on imports coming from the U.S.’ closest and biggest trading partners, ranging from Chinese tech goods to European cars.
China, the European Union, Canada and Mexico have all threatened retaliatory measures. The clock is ticking with $34 billion of U.S. tariffs on Chinese imports due to come into force on July 6; China has said it will retaliate in kind on the same day.
Eric Lonergan, macro fund manager at M&G, told CNBC on Wednesday that Trump might be mollified by European countries promising to address their current account surpluses. A current account surplus is a broader measure of the trade surplus, plus earnings from foreign investments and transfer payments.
“(Regarding the trade surplus) the truth is it’s not just Germany anymore — central and eastern Europe, if you look at Hungary, Poland, the Czech Republic and take them as an aggregate, were running a big current account deficit before, now they’re running a big current account surplus,” he said. “Italy’s running a big current account surplus, the periphery is — so it’s the ‘Germanification’ of the whole of greater Europe.”
Lonergan suggested a solution that he said Germany could instigate. “Why don’t we have a fiscal policy across greater Europe that says we’re going to earmark it to tackle trade, we’re going to cut corporate taxes, we’re going to cut personal taxes and stimulate domestic demand? And Germany could lead on that.”