Tariffs: UK must pick between Europe and US, investment giant warns
The chief investment officer of the largest asset manager in Europe has warned that following Donald Trump’s tariffs, the UK must decide on whether it will stay aligned to the US.
“For the UK, this is a moment to wake and think about what the main axis of strategic partnership they want to have is,” Vincent Mortier, CIO of Amundi, told City PM.
“Is it with the US, becoming a satellite of the US, or is it for stronger ties with Europe? I’m not sure it can be both.”
The investment chief argued that the only way out for Europe and the UK was to band together as a continent and present a unified strategy in the emerging trade war.
“This will be a trigger for Europe to act together and to have a common answer, and it is very important, because China has been quick to retaliate,” Mortier said.
“We could see some temptation for some countries to go their own, to negotiate in a bilateral way,” he added, since European economies have such diversified exports, from wine for France to cars for Germany.
Mortier did say that he had heard rumours escaping from the European Commission that they are opening the door to “some co-operation or alignment with the UK” over the tariffs.
UK markets plummet
The FTSE 100 has crashed almost five per cent today as fears over a global trade war denting growth have swept the UK.
Despite the tariffs being announced Wednesday evening, Mortier explained that it made sense that a crash in markets had only come today, as they had been hoping for hints of a rollback over the weekend.
In addition, he explained that the panic had caused many investors to liquidate their portfolios, with the UK coming before markets like Japan and the US which plummeted last week.
“It is a question of positioning, many people are not really invested in the UK,” he said.
“US investors have been overweight Japan, overweight US, of course, and tech, but quite underweight or not really invested in UK, Europe and China.”
Now, investors have got to selling the dregs of their portfolio, leading Chinese markets to crash 13 per cent today, which the Stoxx Europe 600 is down five per cent.
Tariffs set to cause economic stagnation
Looking across the broader economy, Amundi’s forecasts now predict that the base case for the US economy is stagflation, as the tariffs shave “at least” one per cent of GDP growth, while the taxes push up the price of goods.
In contrast, Mortier said that the tariffs were actually expected to be deflationary in the UK and Europe, due to a slower global economy and falling international investment.
The UK is also set to receive a smaller hit to growth than the Americans, thanks to its relatively small amount of trade with the US.
“If it were to cover services as well, that would have been different. But so far, Trump is obsessed with goods,” said Mortier.
“The US is a very big exporter of services to the world. He knows that if he starts to open the discussion of services, then it might not be in the interest of the US.”
The Amundi CIO was also hopeful that Trump may begin to walk back some of his pledges, such as by setting a timeframe to allow negotiations before the tariffs come into effect.
“We suspect that around him, there are people who are not totally aligned and trying to explain that it might not be the smartest move, but so far, he doesn’t seem to really listen,” he said.