Weekend Headlines: EU Fights Tariffs, DB on Euro, BlackRock’s Fed Pick & Japan Eyes Tax Cut
Trump’s tariff threat on Europe sparks pushback and legal uncertainty
The main news over the weekend was US President Trump’s announcement to introduce a 10% tariff on eight European nations, including Denmark, after Denmark said it would conduct token NATO military exercises in Greenland. The tariff threat was met with pushback from European leaders, including UK Prime Minister Keir Starmer, French President Emmanuel Macron, and Swedish Prime Minister Ulf Kristersson, who criticised the move. However, the tariffs may not take effect, with some analysts saying it's unlikely they will kick in due to a Supreme Court case and other factors, Bloomberg reports. Still, European leaders are discussing their next steps and considering legislation to block the levies.
Meanwhile, French President Emmanuel Macron will request the activation of the European Union’s anti-coercion instrument, according to Bloomberg. The European Union’s Anti-Coercion Instrument (ACI) is a legal and policy tool designed to protect the EU and its Member States from economic coercion by third countries. Economic coercion refers to situations in which a country outside the EU seeks to pressure the EU or a Member State into making a particular decision by applying, or threatening to apply, measures that affect trade or investment—such as tariffs, import/export restrictions, or other trade barriers, according to Wikipedia.
Deutsche Bank says Euro pain from Trump limited by US asset exposure
Europe is the US’s largest lender, with its countries owning $8 trillion of US bonds and equities, almost twice as much as the rest of the world, according to George Saravelos, Deutsche Bank’s global head of FX research. “In an environment where the geoeconomic stability of the Western alliance is being disrupted existentially, it is not clear why Europeans would be as willing to play this part,” he said. “Developments over the last few days have potential to further encourage dollar rebalancing. With the US net international investment position at record negative extremes, the mutual inter-dependence of European-US financial markets has never been higher,” Saravelos said. “It is a weaponization of capital rather than trade flows that would by far be the most disruptive to markets.” (BBG)
Rick Rieder of BlackRock gains support for Fed chair
According to Bloomberg, Rick Rieder from BlackRock has emerged as a strong contender for the next Federal Reserve chair, sources say. After a positive interview with Trump, Rieder is now competing with three others: Kevin Hassett, Christopher Waller, and Kevin Warsh. Some sources note that Rieder may have an easier path to confirmation, as key senators have indicated that Trump's Fed nominees will be closely examined. Meanwhile Bloomberg reports that White House economic adviser Kevin Hassett said President Donald Trump may well keep him in his current job, which would eliminate him from contention for the next Federal Reserve chair. “From the beginning, he and I have talked about whether it’s better for me to be here in the West Wing or over at the Fed,” Hassett said on Fox News’ The Sunday Briefing. “I don’t think he’s made a final call on that.”
How the attacks on the Fed could backfire
Randall Forsyth suggests in Barron’s that direct economic controls may increase before the midterms, with legal actions against the Fed as an example. History from the 1970s shows such tactics often lead to long-term problems, like the stagflation after Nixon’s wage-and-price controls and loose Fed policies—a lesson now overlooked.
Japan's parties mull consumption tax cut ahead of election
Nikkei reports that lowering Japan's 10% consumption tax may become a major topic in the upcoming lower house election on February 8, with both ruling and opposition parties debating whether to propose a reduction in their campaign pledges. Within the ruling Liberal Democratic Party, there was a suggestion to temporarily exempt food from taxation.