US/UK agreement: encouraging or worrying for Europe? - May 12, 2025

The draft Anglo-American trade agreement and the resumption of talks between the US and China are concrete signs of a constructive mood of de-escalation. But investors are hesitant to draw any positive conclusions for the EU-US conflict at this stage.

The details of the Anglo-American agreement have not yet been fully published, but the broad outlines are already known. In particular, the UK has agreed to 10% tariffs on its exports to the US, with certain exceptions, including steel, which is exempt (0% tariff). Additional concessions have been announced, including a limit of 100,000 British vehicles exported per year—above which a higher tariff would apply—and other quantitative limits on steel exports. It appears that the UK has also agreed not to raise the tax on GAFAM for the time being and to lower barriers to entry for US agriculture, without however abandoning local health regulations. Other agreements on non-tariff protections are also on the table. Finally, the issue of VAT – which Donald Trump has repeatedly described as “unfair” to US exporters – has disappeared from the discussions. These agreements, further signs of trade de-escalation – combined with the opening of talks with China – have reinforced the recovery in stock market indices since April 9 (Chart 1).

However, this initial agreement with a partner that has historically been close to the United States and has relatively balanced bilateral trade gives an idea of the minimum level of concessions that a country may be required to make in this type of negotiation. Other draft agreements appear close to completion, for example with Japan and South Korea, which will provide further valuable insights. However, uncertainty will remain high regarding negotiations with Europe, as the stakes are significantly higher. The United States has a $240 billion trade deficit in goods with the European Union (Chart 2), and the EU's negotiating strategy appears more combative than that of the United Kingdom. There is therefore a risk that Donald Trump will use the deals with the United Kingdom and other countries as a pretext to denounce European resistance and launch a strong attack.

This is undoubtedly why investors are currently very cautious about European stocks that are most sensitive to bilateral trade, including automotive, capital goods, consumer goods, shipping, etc. These stocks have certainly rebounded somewhat since April 9, but they are still underperforming the Euro Stoxx by 18% since Donald Trump's election (Chart 3).

These sensitive stocks could of course rebound if an agreement is reached before July 9, the supposed deadline for negotiations. Our funds, which are well invested in European multinationals, would benefit from this. However, for the time being, we have decided to supplement our flexible European portfolios with an equally weighted basket of 22 stocks that stand to benefit from Europe's concrete response to the threats from the US administration, with the German budget plan and the ECB's continued rate cuts. This new “European reflation” thematic basket is equally divided between domestic industrial stocks and real estate stocks.