Leverage: Can the global weakening of the euro lead to a US-EU trade war?

On Wednesday, June 19, the euro slightly strengthened against the US dollar - by 0.1%, to $ 1.12. The European currency is uncertainly trying to recover to the US after a noticeable weakening the day before. On June 18, the rate dropped immediately by 0.24% - to $ 1.11 per euro. The value has become minimal since the beginning of the month.

According to RT experts polled, the statements of the European Central Bank (ECB) Chairman Mario Draghi, who reported a possible reduction in interest rates to support the EU economy, put pressure on the euro to a large extent.

“Further reductions in interest rates and additional measures to curb side effects remain part of our toolkit,” Draghi said.

Analysts explain that central banks around the world traditionally lower interest rates to stimulate economic growth: loans are becoming cheaper, consumption levels and investment volumes are starting to grow. According to the head of the group of analysts TsAFT, Mark Goikhman, today the ECB rate cut is especially necessary because the development of the eurozone economy is undermined by global trade wars, slowing global GDP growth, the possibility of “tough” brexit, as well as Europe's problems with banking and migration.

In its actions, the ECB relies on the level of inflation in the eurozone. According to official statistics of Eurostat, more than six months, the rise in prices in the region remains below the target mark of 2%, and in May the figure dropped to 1.2%. Such a long slowdown in inflation speaks of a reduction in consumer demand and production volumes, so the regulator is forced to lower rates. Meanwhile, market players negatively assessed Draghi’s statements and began withdrawing funds from the euro.

“Mitigation of monetary policy is not carried out from a better life, therefore, the European currency fell in relation to other instruments. Investors took the words of Mario Draghi as a statement of the deteriorating situation in the European economy, and, as a result, they began to sell the currency, ”told RT Head of the Analytical Department of FinIst Katya Frenkel.

However, the rhetoric of the ECB chairman caused concern not only among world investors, but also among US President Donald Trump. In particular, as the head of the White House said, Europe is thus deliberately manipulating its own currency to increase the competitiveness of its products in the global market.

“Mario Draghi just announced the possibility of additional incentives, which immediately led the euro to the dollar down. This unfairly makes it easier for them to compete with the States. For many years they have been doing this with impunity, as well as China and other countries, ”Trump wrote on Twitter.

Vadim Iosub, senior analyst at the Alpari Information and Analytical Center, explained to RT that as a result of the weakening of the euro against the dollar, American products start to rise in prices in the EU markets, while European goods, on the contrary, are becoming cheaper in the US Thus, according to the expert, manufacturers from Europe remain in the win.

“Ultimately, in the United States, the demand for European counterparts of American goods increases. This leads to an increase in European imports to the United States and a simultaneous reduction in exports from the States to Europe. Thus, the trade balance is upset, ”Vadim Iosub stressed.

"The game of giveaway"

At the end of May, the US Department of Commerce threatened all countries with tariff restrictions with “currency manipulators”. So, if any state deliberately lowers the rate of national currency, the US authorities will be ready to introduce countervailing compensation duties. This is stated in the official statement of the department.

“The Commerce Department can compensate for currency easing (for foreign exporters. - RT ) that harm US industry. Foreign states will no longer be able to use monetary policy to the detriment of American workers and entrepreneurs, ”said Wilbur Ross, head of the ministry.

It is noteworthy that earlier Donald Trump repeatedly accused China of currency manipulation, especially in the framework of the trade war between Beijing and Washington. According to him, the Asian Republic also artificially lowers the rate of the yuan to support its own producers. At the same time, experts note, the American president himself adheres to a similar policy and is trying to make the dollar cheaper.

“Now no one seeks pride in the high rate of their currency. On the contrary, the situation resembles a “giveaway game” - whoever has a weaker currency wins. Trump is trying to protect protection of his domestic market by protectionist duties, but at the same time he is striving to weaken the dollar so that American manufacturers get export advantages, ”explained Mark Goykhman.

In an interview with RT, Pyotr Pushkarev, chief analyst at TeleTrade, noted that currently the strengthening of the national currency is also unprofitable for Europeans. According to the expert, the appreciation of the euro in the global market could weaken the position of the European automotive industry and increase the influence of American agricultural producers in the EU and other countries of the world.

However, analysts polled by RT differently assess the likelihood of a worsening trade conflict between the US and the EU amid a weakening euro. For example, according to Dmitry Gelomurzin, executive director of the Goldman Group holding company, in the current environment, the US economy will not be able to withstand both China and Europe at the same time.

Meanwhile, as Mark Goykhman believes, the possible compensation duties of the States could significantly hit the EU engineering industry and the European supply of steel and other metals. At the same time, according to the expert, the barriers would affect the United States themselves.

“Rising prices for imports of European metal raw materials will limit its presence in the US market and, possibly, will give the States additional income in the form of customs duties. However, like any restriction of competition, the situation will lead to an increase in domestic prices in the United States, which in turn will hit American manufacturers, ”concluded Goykhman.