Hope in European capital markets with a dash of uncertainty

In recent days, we have witnessed a tangible phenomenon in European capital markets described as "creating vague hope." The reality is that the European Union, particularly the Eurozone economy, has experienced turbulent weeks since Trump’s rise to power, heavily influenced by the tariff war between Washington and Beijing and its ramifications.

In this context, bilateral negotiations between the United States and China have raised hopes among both small and large investors in European markets for a sustainable agreement between the primary parties to the dispute, who also happen to be Europe’s main import and export partners.

However, the key question remains: Will such a sustainable agreement truly materialize, or will we face further crises down the road? Paschal Donohoe, Ireland’s Finance Minister and President of the Eurogroup (finance ministers of EU member states), in an exclusive interview with Euronews, welcomed the U.S.-China agreement to significantly reduce tariffs for 90 days, calling it a promising development in EU-U.S. relations.

Formulating this "hope" is not particularly difficult. After weeks of intense economic tension, the United States and China agreed to substantially reduce the tariffs they had imposed on each other—a decision signaling a de-escalation in one of the world’s most critical trade relationships. The U.S. had previously imposed tariffs of up to 145% on Chinese goods, raising concerns about long-term disruptions to global trade flows.

Now, following an official announcement from the White House, President Donald Trump has spoken of a “complete reset” in U.S.-China relations. However, experience shows that a decision announced at the White House does not necessarily translate into action! A clear example is the Ukraine war, where Trump claimed he would impose a ceasefire agreement on the conflicting parties (Moscow and Kyiv) within 24 hours, yet four months later, he speaks of a deadlock in Ukraine ceasefire negotiations.

In the case of the U.S.-China trade and tariff war, the parties have taken steps toward "de-escalating the conflict," but this does not mean a return to the pre-Trump White House era!

Under the new agreement, both countries will reduce tariffs for 90 days. Trump also stated that he does not expect the 145% rates to return. However, the U.S. President has offered no guarantees regarding the end of the economic war with China, and on the other side, Beijing remains guarded against any potential reversal by Washington in tariff negotiations.

European capital markets have adopted a cautiously optimistic approach to the ongoing negotiations while remaining wary of any sudden developments or decisions—particularly from Trump and the U.S. Treasury Department—that could reverse this trend. Trump has no intention of recognizing the structure governing the World Trade Organization (WTO) or its operations, while the Chinese insist on economic multilateralism.

This conflict is not easily resolvable by either side and will require one of them to compromise on their broader economic principles and perspectives. Such readiness and flexibility are currently absent in both parties. This very issue prevents maximum optimism in European markets and their stakeholders.

More importantly, traditional pathways for tariff negotiations have been replaced by new, bilateral routes, significantly reducing the ability of European investors and recipients to predict the future.

In areas like digital services, where negative trade balances and tax disputes persist, the situation is far more complex. Concurrently with U.S.-China talks, the European Commission’s negotiations on trade policy, particularly digital services taxation, with the U.S. are ongoing—talks that, so far, have been neither particularly promising nor fruitful!