LIVE MARKETS-How to assess an US/EU trade deal

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HOW TO ASSESS AN EU-US TRADE DEAL

It's getting close to crunch time in US trade talks with most of the world, and Goldman have a note out Friday that examines the various scenarios for US-EU deal.

They say there are four key elements to watch:

- whether the increase in the so-called 'reciprocal' tariff is averted. Remember, on April 2 most EU goods were given a 20% tariff .

- whether the EU obtains some concessions or carveouts on existing tariffs, as the UK-US deal for example entailed.

- whether the US offers any preferential treatment on tariffs that could arise from ongoing Sec. 232 investigations on critical goods. (President Donald Trump has used Section 232 of the Trade Expansion Act of 1962 as justification for so-called sectoral tariffs aimed at boosting domestic production of goods he says are critical to national security.

- any commitments by the EU to lower trade barriers, limit retaliation, or increase strategic purchases from the US.

Their baseline assumption is an agreement in principle is reached by the deadline "which keeps existing tariff in place, limits EU retaliation, and sets the stage for further talks."

In that scenario, they see a total drag on GDP of around 0.6%.

A full and lasting deal would see a GDP drag of just 0.2%. If the US tariff rate on the EU increases to 20% or 50%, that would provide a total drag on GDP of 0.9% and 1.4%, respectively.

(Alun John)

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