EU Presses US to Reduce Steel Tariffs and Expand Trade Concessions Amid Fragile July Agreement

Economic

Summary:

The European Union is urging the United States to ease its 50% tariffs on steel and aluminum and eliminate duties on EU goods like wine and spirits...

A Fragile Trade Truce Under Pressure

The European Union has intensified diplomatic efforts to protect the integrity of the July 2025 trade agreement with the United States, which was designed to ease long-standing tariff tensions. At the core of the latest discussions held on November 24 in Brussels is the EU’s demand for Washington to reduce its punitive 50% tariffs on steel and aluminum and to remove remaining duties on sensitive EU exports such as wine, spirits, olives, and pasta.

The July deal had marked a cautious turning point. Under its terms, the US agreed to lower overall tariffs on most EU goods to 15%, while the EU eliminated several duties on American products. However, the recent expansion of U.S. steel and aluminum tariff applications now encompassing hundreds of derivative goods since mid-August has reignited friction.

Widening Tariff Scope and Political Risks

The U.S. Department of Commerce’s decision to broaden the 50% tariff regime threatens to reverse the limited gains achieved just months ago. EU diplomats fear a domino effect, with potential future duties targeting other critical goods such as commercial trucks, rare minerals, aircraft components, and wind turbines.

This expansion raises not just economic concerns, but a strategic one as well: the potential erosion of EU confidence in the trade truce. As EU Trade and Economic Security Commissioner Maros Sefcovic stated, while dialogue is progressing, there remains “much more to be done,” particularly on metals and derivative goods.

The concern is not only economic in nature but geopolitical: with growing pressure from China and uncertainties surrounding U.S. protectionist tendencies, the EU sees trade stability with the U.S. as a pillar of its economic and diplomatic positioning.

EU Push for Restoring Pre-Trump Tariff Norms

Beyond steel and aluminum, the EU is calling for a broader return to pre-2018 tariff conditions, particularly for lifestyle and agricultural goods. Wine, spirits, olives, and pasta sectors with strong symbolic and economic ties to European identity remain affected by residual tariffs introduced during the Trump administration.

In addition, the EU aims to expand transatlantic cooperation into regulatory areas such as auto standards and joint energy procurement frameworks. These proposals are meant to reduce dependency on third-party suppliers and to build a common resilience framework in the face of export restrictions especially from China.

No Breakthrough Expected Yet, But Stakes Remain High

While the Brussels talks are unlikely to yield immediate breakthroughs, they serve to reinforce the EU’s commitment to salvaging the July 2025 trade framework. The emphasis is not just on tariff removal, but on preventing further escalation and cementing a more balanced trade dynamic.

The political calculus is clear: allowing tariff tensions to fester could unravel hard-won cooperation and further complicate the EU’s economic transition goals, particularly those tied to green energy, industrial reform, and critical supply chain diversification.

The Clock is Ticking on EU-US Trade Stability

As trade tensions persist, the EU is navigating a narrow path between preserving diplomatic momentum and confronting the risk of renewed protectionism from Washington. The steel and aluminum tariffs remain a litmus test for the Biden administration’s trade posture in the run-up to a volatile election year.

Whether through negotiation or pressure, the EU is signaling that stable transatlantic trade relations must go beyond symbolism. They require tangible, verifiable action on tariff reduction and cooperative mechanisms for responding to global supply shocks. Without this, the fragile framework of July 2025 may prove to be a short-lived detente rather than a durable reset.

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James Whitman

Political

Russia-Ukraine Conflict

U.S. Army Secretary Dan Driscoll held talks with Russian officials in Abu Dhabi on Monday, a U.S. official told Reuters, the latest effort by President Donald Trump's administration to broker a peace agreement between Russia and Ukraine.

The meeting comes after U.S. and Ukrainian officials sought to narrow the gaps between them over a plan to end the war in Ukraine, agreeing to modify a U.S. proposal that Kyiv and its European allies saw as a Kremlin wish list.

The U.S. official, speaking on the condition of anonymity, said Driscoll's talks would continue into Tuesday. It was unclear who would be in the Russian delegation.

The official added that Driscoll was also expected to meet Ukrainian officials while in Abu Dhabi.

The White House did not immediately respond to a Reuters request for comment.

U.S. policy toward the war in Ukraine has zigzagged in recent months.

Trump's hastily arranged Alaska summit with Russian President Vladimir Putin in August spurred worries Washington might accept many Russian demands, but ultimately resulted in more U.S. pressure on Russia.

The latest U.S. peace proposal, a 28-point plan, caught many in the U.S. government, Kyiv and Europe off-guard and prompted fresh concerns that the Trump administration might be willing to push Ukraine to sign a peace deal heavily tilted toward Moscow.

The plan would require Kyiv to cede more territory, accept curbs on its military and bar it from ever joining NATO, conditions Kyiv has long rejected as tantamount to surrender. It would also do nothing to allay broader European fears of further Russian aggression.

The sudden U.S. push raises the pressure on Ukrainian President Volodymyr Zelenskiy, who is now at his most vulnerable since the start of the war after a corruption scandal saw two of his ministers dismissed and as Russia makes battlefield gains.

Source: Reuters

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Gerik

Economic

A Sudden Shock That Shattered an Export Engine

The U.S. tariff hike to 50% comprising a 25% baseline tariff and an additional 25% penalty tied to India’s purchases of Russian oil has rapidly destabilized India’s textile sector. With the U.S. absorbing $37 billion of India’s textile exports in 2024, the causal impact is direct and immediate: order inflows have collapsed, production capacity has shrunk, and thousands of workers now face income uncertainty.

Tiruppur, which accounts for 68% of India’s knitwear exports and employs roughly 800,000 workers, is the epicenter of this crisis. The region’s dependence on the U.S. market is substantial 35% of its monthly output, equivalent to 15 billion rupees, flows directly to American buyers. When the tariff spike took effect on August 27, export volumes plunged by 10.34% in September and another 12.91% in October, marking one of the steepest falls in the past decade.

Margins Collapse as Buyers Pull Back

The tariff’s economic transmission mechanism is clear: the effective duty rate jumped far beyond comparable levels for competitors such as Bangladesh, Pakistan, Sri Lanka, and Myanmar, who face tariffs around 19–20%. Even the original 25% increase had already eroded margins, which typically range only between 5–10%. But the additional 25% penalty effectively destroyed the ability of Indian exporters to price competitively.

The consequences are evident in individual case studies. Raft Garments, a family-run exporter supplying major U.S. labels like Nautica and Skechers, saw its annual order volume cut from 2 million units to barely 500,000. The remaining 1.5 million units initially under negotiation have been indefinitely shelved. Similar stories reverberate across Tiruppur, where factories have draped idle machinery in blue tarpaulins, symbolizing paralysis across the cluster.

Production Cuts and Labor Distress: A Social Crisis Emerges

The collapse in demand has triggered cascading effects on employment. Firms have reduced operating capacity to one-third, merged shifts, and refrained from rehiring migrant workers after the Deepavali holidays due to a lack of work. Raft Garments, once operating 15 production lines, now runs only 5, employing just 84 of its original 250 workers.

This is not a headline-grabbing mass layoff, but a slow-burn erosion of livelihoods. Daily-wage and piece-rate workers primarily women and Dalit communities are the most vulnerable. Their workload has fallen sharply, tightening household finances and prompting reverse migration back to home villages.

The link between trade policy and labor outcomes is therefore causal and immediate: the tariff shock constricts export demand, forcing production cuts and reducing labor absorption.

Businesses Scramble for New Markets But Substitutes Are Limited

New Delhi has urged exporters to diversify beyond the U.S., but entrepreneurs emphasize that textile supply chains cannot be reoriented overnight. Establishing new buyer relationships in Europe, Africa or the Middle East often takes months or years and rarely matches U.S. order volume.

Some business owners are exploring radical strategies setting up production abroad in Bangladesh or Vietnam to circumvent tariffs. This indicates a structural, not cyclical, rupture: the industry is considering geographical realignment of manufacturing capacity, a sign of deep vulnerability in India’s textile value chain.

A Political Problem Requires a Political Solution

Industry associations argue that no amount of domestic cost-cutting can offset a 50% tariff. The central government’s 200-billion-rupee credit package offers temporary liquidity, but risks increasing leverage in a sector already burdened by thin margins and high labor intensity.

Exporters insist the only meaningful remedy lies in diplomacy. The tariff, fundamentally geopolitical in nature, can only be reversed through a renegotiated trade arrangement. The survival of thousands of firms now hinges on the outcome of ongoing U.S.–India discussions.

Structural Weaknesses Laid Bare

While the tariff shock was externally triggered, it has revealed fundamental internal weaknesses. Many Tiruppur factories still operate with machinery from the 1990s, while global buyers increasingly demand advanced textiles with antimicrobial, moisture-wicking, and stain-resistant properties. As competitors invest aggressively in innovation, India remains stuck in a volume-driven, low-margin model.

This is a correlational insight with long-term implications: outdated technology does not directly cause tariff exposure, but it amplifies vulnerability when external disruptions occur. A technologically modernized industry would have had stronger pricing power and better resilience.

Reinvention Is No Longer Optional

The crisis gripping India’s textile industry is both an external shock and an internal reckoning. U.S. tariffs have dealt the immediate blow, but the sector’s fragility stems from years of underinvestment in technology, overdependence on a single market, and limited strategic diversification.

For Tiruppur and India’s wider textile ecosystem, the path forward requires simultaneous action on two fronts: diplomatic engagement to ease tariff burdens and deep structural reforms to upgrade production capabilities, broaden export destinations, and modernize factory operations.

Without such transformation, India’s most important textile hub will remain dangerously exposed to the next geopolitical wave one that could be even harder to withstand.

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Justin

Political

Economic

After being elected in a landslide last year, Britain's Labour Party government delivered a budget it billed as a one-off dose of tax hikes to fix the public finances, get debt down, ease the cost of living and spur economic growth.

A year on, inflation remains stubbornly high, government borrowing is up and the economy is turgid. The annual budget, due on Wednesday, is expected to bring more tax hikes in pursuit of the same elusive economic boom.

Rain Newton-Smith, head of business group the Confederation of British Industry, said Monday that "it feels less like we're on the move, and more like we're stuck in 'Groundhog Day.'"

It's not just businesses who are concerned. Alarmed by the government's consistently dire poll ratings, some Labour lawmakers are mulling the once-unthinkable idea of ousting Prime Minister Keir Starmer, who led them to victory less than 18 months ago.

Luke Tryl, director of pollster More in Common, said voters "don't understand why there has not been positive change.

"This could be a last-chance saloon moment for the government."

Not much room for maneuver

The government says Treasury chief Rachel Reeves will make "tough but right decisions" in her budget to ease the cost of living, safeguard public services and keep debt under control.

She has limited room for maneuver. Britain's economy, the world's sixth-largest, has underperformed its long-run average since the global financial crisis of 2008-2009, and the center-left Labour Party government elected in July 2024 has struggled to deliver promised economic growth.

Like other Western economies, Britain's public finances have been squeezed by the costs of the COVID-19 pandemic, the Russia-Ukraine war and U.S. President Donald Trump's global tariffs. The U.K. bears the extra burden of Brexit, which has knocked billions off the economy since the country left the European Union in 2020.

The government currently spends more than 100 billion pounds ($130 billion) a year servicing the U.K.'s national debt, which stands at around 95% of annual national income.

Adding to pressure is the fact that Labour governments historically have had to work harder than Conservative administrations to convince businesses and the financial markets that they are economically sound.

Reeves is mindful of how financial markets can react when the government's numbers don't add up. The short-lived premiership of Liz Truss ended in October 2022 after her package of unfunded tax cuts roiled financial markets, drove down the value of the pound and sent borrowing costs soaring.

Luke Hickmore, an investment director at Aberdeen Investments, said the bond market is the "ultimate reality check" for budget policy.

"If investors lose faith, the cost of borrowing rises sharply, and political leaders have little choice but to change course," he said.

Mixed pre-budget signals

The government has ruled out public spending cuts of the kind seen during 14 years of Conservative government, and its attempts to cut Britain's huge welfare bill have been stymied by Labour lawmakers.

That leaves tax increases as the government's main revenue-raising option.

"We're very much not in the position that Rachel Reeves hoped to be in," said Jill Rutter, a senior fellow at the Institute for Government think tank.

Instead of an economy that has "sparked into life," enabling higher spending and lower taxes, Rutter said Reeves must decide whether "to fill a big fiscal black hole with tax increases or spending cuts."

The budget comes after weeks of messy mixed messaging that saw Reeves signal she would raise income taxes – breaking a key election promise – before hastily reversing course.

In a speech on Nov. 4, Reeves laid the groundwork for income tax hikes by arguing that the economy is sicker and the global outlook worse than the government knew when it took office.

After an outcry among Labour lawmakers, and a better-than-expected update on the public finances, the government signaled it preferred a smorgasbord of smaller revenue-raising measures such as a "mansion tax" on expensive homes and a pay-per-mile tax for electric vehicle drivers.

The government will try to ease the sting with sweeteners including an above-inflation boost to pension payments for millions of retirees and a freeze on train fares.

Critics say more taxes on employees and businesses, following tax hikes on businesses in last year's budget, will push the economy further into a low-growth doom loop.

Patrick Diamond, professor in public policy at Queen Mary University of London, said satisfying both markets and voters is difficult.

"You can give markets confidence, but that probably means raising taxes, which is very unpopular with voters," he said. "On the other hand, you can give voters confidence by trying to minimize the impact of tax rises, but that makes markets nervous because they feel that the government doesn't have a clear fiscal plan."

High stakes for Reeves and Starmer

The budget comes as Starmer is facing mounting concern from Labour lawmakers over his dire poll ratings. Opinion polls consistently put Labour well behind the hard-right Reform UK party led by Nigel Farage.

The prime minister's office sparked a flurry of speculation earlier this month by preemptively telling news outlets that Starmer would fight any challenge to his leadership. What looked like an attempt to strengthen Starmer's authority backfired. The reports set off jitters verging on panic among Labour lawmakers, who fear the party is heading for a big defeat at the next election.

That election does not have to be held until 2029, and the government continues to hope that its economic measures will spur higher growth and ease financial pressures.

But analysts say a misfiring budget could be another nail in the coffin of Starmer's government.

"Both Starmer and Reeves are really unpopular," Rutter said. "They may be hanging on for now, but I don't think people will be giving you great odds that they'll necessarily last the course of the Parliament," which runs until the next election.

Source: Yahoo Finance

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Winkelmann

Economic

New car sales in Europe rose 4.9% in October as electric cars outpaced petrol and diesel registrations, European Automobile Manufacturers' Association data showed on Tuesday.

WHY IT'S IMPORTANT

The European car industry has taken a series of hits this year including U.S. President Donald Trump's trade tariffs, a slowdown in the Chinese market, and a slower-than-expected transition to electric vehicles.

Recently, concerns about a potential chip supply chain crisis surrounding Dutch chipmaker Nexperia had also added fuel to the fire.

Meanwhile, Chinese electric car exports to Europe are increasing.

BY THE NUMBERS

Sales in the European Union, Britain and the European Free Trade Association rose to 1.092 million cars in October as its largest markets including Germany and Britain added more new cars than last year, ACEA data showed.

Registrations at Volkswagen, Stellantis and Renault rose year-on-year by 6.5%, 4.6% and 10.6%, respectively. Despite Stellantis' registrations being down 4.7% year-to-date compared to the same period in 2024.

Tesla's sales meanwhile dropped 48.5% from a year ago as BYD's sales jumped 206.8%, now holding 1.6% of the market share from 0.5% in October 2024. Registrations of Chinese-owned SAIC Motor also jumped 35.9% from last year.

Total EU car sales rose 5.8%. Registrations of battery electric, plug-in hybrid and hybrid electric cars were up 38.6%, 43.2% and 9.4%, respectively, to account collectively for about 63.9% of the bloc's registrations, up from 55.4% in October 2024.

All major markets saw drops in their petrol and diesel

Overall sales rose 7.8% in Germany, 0.5% in the UK, 15.9% in Spain, 2.9% in France and fell 0.5% in Italy.

QUOTE

European Car Sales Rise 4.9% In October, ACEA Says_1

"Despite this recent positive momentum, overall volumes remain far below pre-pandemic levels," ACEA said.

"The battery-electric car market share reached 16.4% year to date, yet it is still below the pace needed at this stage of the transition," it added.

Source: Investing

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Gerik

Forex

Economic

A Currency Defying Headwinds

In 2025, the renminbi has posted a nearly 3% annual gain against the U.S. dollar, a notable contrast to its 5% depreciation in 2018 during the height of U.S.–China trade tensions. What makes this performance remarkable is the backdrop: China is contending with weak domestic consumption, record-low interest rates, a $281 billion capital account deficit over the first 10 months, and ongoing trade pressures from the U.S.

Yet, despite these negative fundamentals, the renminbi has appreciated steadily. This divergence between economic headwinds and currency strength signals a key causal force tight state management of the exchange rate by the People’s Bank of China (PBoC). Through persistently setting the daily midpoint reference rate above market expectations and deploying state-owned banks to buy USD in both onshore and offshore markets, Beijing has maintained orderly appreciation while avoiding volatility.

A Renewed Push for Currency Internationalization

The controlled strengthening of the renminbi suggests a renewed policy priority: positioning the currency as a regional and global store of value. Analysts from Pantheon Macroeconomics and Societe Generale point to similarities with China’s behavior during the 1998 Asian Financial Crisis, when it resisted competitive devaluation to build credibility.

This time, the policy intent is clearer. The 15th Five-Year Plan, released in October 2025, omits previously cautious language like "prudently promote" yuan internationalization. Goldman Sachs interprets this shift as a signal that currency internationalization is now a central policy goal, supported by Beijing’s tolerance for moderate, steady CNY appreciation.

Interest Rate Asymmetry and the Reference Rate Strategy

The current PBoC benchmark rate remains significantly below that of the U.S. Federal Reserve, reflecting China’s need to support weak domestic growth. However, the renminbi’s rise is not being driven by interest differentials traditionally a key determinant of FX flows but by aggressive use of the central bank’s reference rate.

Since November 2024, the average spread between PBoC’s daily fix and market expectations has been 327 basis points an unusually high gap that highlights China’s proactive control. This divergence is not accidental; it creates a one-sided expectation that the yuan will not weaken drastically, which deters speculative short-selling and supports confidence in the currency.

Foreign Exchange Activity and Capital Controls

Another structural pillar supporting the renminbi’s stability is the role of state-owned banks. Their regular participation in the market, including discreet sales of yuan and purchases of dollars, has kept the three-month volatility of CNY/USD at near decade-lows. This engineered calm has incentivized exporters to gradually unwind their holdings of over $1 trillion stored in domestic banks creating real USD supply and reinforcing CNY strength.

That said, the renminbi’s strength is not uniform. It has lost 7.7% against the euro and 3% against a trade-weighted currency basket this year, indicating that the appreciation is concentrated primarily in the USD pair. Moreover, without meaningful relaxation of China’s strict capital controls, large-scale global usage of the renminbi remains structurally constrained.

Growing Usage in Global FX Markets

According to the latest BIS survey, daily trading volume in the CNY–USD pair surged nearly 60% to $781 billion compared to 2022. The renminbi now accounts for over 8% of global FX turnover, suggesting growing interest from global participants especially central banks and institutional investors despite the limits of convertibility.

This is likely part of a long-term strategy. By anchoring the renminbi’s value and demonstrating stability amid global financial turbulence, China is nurturing its credibility as a reserve and trade settlement currency. This is particularly relevant in light of de-dollarization efforts among emerging economies and geopolitical shifts that encourage diversification in global payment systems.

A Political Currency with Global Aspirations

China’s recent handling of the renminbi is not simply a reaction to short-term economic conditions it is a calculated signal of its broader ambitions. The combination of disciplined exchange rate management, state-supported interventions, and long-term reform commitments suggest that Beijing is actively reengineering the renminbi’s role in the global financial system.

While structural limits like capital flow restrictions remain in place, China is taking incremental but deliberate steps to elevate the renminbi as a trusted regional and global asset. The steady pace of CNY appreciation, underpinned by trade competitiveness and historical credibility, could prove to be Beijing’s most effective instrument of soft power in an increasingly multipolar financial world.

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Gerik

Economic

Forex

Interest Rate Divergence Undermines CAD in 2025

The Canadian dollar has struggled throughout 2025, hovering around 71 U.S. cents, following a sharp decline from a peak of 73.7 cents in June. Analysts attribute this weakness to several overlapping factors, most notably the widening interest rate gap between the U.S. Federal Reserve (Fed) and the Bank of Canada (BoC). While the Fed has recently cut rates twice bringing its benchmark down to 4% its rate still significantly exceeds BoC’s 2.25%, making the U.S. dollar relatively more attractive to global investors. The result has been a sustained depreciation of the CAD throughout the second half of 2025.

The short-term causal impact of interest rate differentials is clear: higher returns on U.S. assets have triggered capital outflows from Canada, applying direct downward pressure on the Canadian currency.

Forecast for 2026: Steady Climb Amid Shifting Monetary Landscape

According to Scotiabank's projections, the Canadian dollar is expected to stabilize and begin recovering in 2026. The bank forecasts the CAD starting the year at 72.5 U.S. cents and gaining approximately one cent per quarter, potentially reaching 75 cents by the end of the year. This anticipated uptrend is tied to the expectation that the Fed will continue its easing cycle, cutting rates by a total of 100 basis points to reach 3% amid mixed signals from the U.S. economy including strong equity markets, a sluggish housing sector, and uneven consumer spending.

This anticipated narrowing of interest rate differentials suggests a likely reversal in capital flows, benefiting the Canadian dollar. Additionally, Scotiabank believes BoC’s October rate cut may have marked the end of its easing cycle, implying a more restrictive stance going forward. This divergence in policy trajectories reinforces a causal expectation of CAD appreciation through 2026.

Fiscal Stimulus and Structural Reforms Add Tailwinds

Canada's federal fiscal stimulus though expected to take effect with some delay is also seen as supportive of domestic economic growth. Scotiabank suggests that while the capital expenditure wave from the federal budget will take time to materialize, it will eventually enhance productivity and employment, indirectly strengthening the CAD.

The link here is sequential rather than immediate: fiscal spending takes six to twelve months to filter through the economy, meaning the CAD’s response may only become noticeable in late 2026 or early 2027. Nonetheless, improved fundamentals should boost investor confidence in Canada’s growth trajectory.

Trade Policy Risks Cloud the Outlook

However, several risk factors could impede the CAD’s recovery. Foremost among them is uncertainty surrounding U.S. trade policy. Key Canadian export sectors such as steel, aluminum, autos, and lumber remain vulnerable to tariff regimes and protectionist rhetoric. Although there are discussions about potential tariff reductions for aluminum, the broader risk of renewed trade frictions poses a persistent threat to Canada’s external balance.

This relationship is causal and direct: protectionist trade measures reduce export volumes, weaken trade surpluses, and lower demand for Canadian currency. Such developments could easily offset gains made through monetary normalization or fiscal support.

The Canadian dollar’s prospects in 2026 are cautiously optimistic. While narrowing rate differentials and upcoming fiscal outlays point to a gradual strengthening trend, material risks remain. The currency’s path will be shaped not only by domestic monetary and fiscal policy but also by global investor sentiment and bilateral trade tensions especially with the United States. For CAD to reach the 75–77 U.S. cents range forecast for 2026–2027, macroeconomic coordination and stable trade relations will be just as critical as interest rate dynamics.

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