The US likes to fight one battle at a time
The US Commerce Dept will soon issue its opinion on whether EU cars are a national security threat. The opinion would be the first step towards tariffs on EU cars and would surely trigger retaliatory action from the EU.
EU spokesman Margaritis Schinas responded today that if the US goes ahead with "actions detrimental to European exports, the European Commission would react in a swift and adequate manner."
Undoubtedly a battle between the EU and US would be detrimental to both economies and the world economy. The euro would sink on the news of tariffs and global assets would be impaired, especially if the EU hits back with a strong response.
The sliver of good news is that the pattern so far is for the US to want to fight a major battle on one front at a time. The China tariff fight didn't begin until the NAFTA fight was winding down in late September.
The optimistic scenario here is that if the US pivots towards the EU, it will come at the same time as settling the dispute with China. On net, that's a positive for the global economy, especially if the battle with the EU is limited only to autos.
On the margin, the winner in this scenario is likely to be selling EUR/AUD. The Australian dollar is sensitive to global and China growth while trade with the EU is much less.
