EUR/USD Rises as US Relationship With Europe Weakens

The EUR/USD pair has moved slightly higher this week. Yesterday, the pair rose from a low of 1.1170 and reached a high of 1.1270. This happened as investors have ignored the tensions rising between the US and European Union. This article summarizes the key contentious issues.

Trade

For years, European Union and United States have been important allies on many issues. The two are members of NATO, OECD, and other large organizations that help make the world a better place. The two are also some of the largest trading partners. Still, there have been issues about trade. For more than 30 years, Donald Trump has talked against the European Union, arguing that the region takes advantage of the US. He cites the 25% tariffs the US places on American cars. Last year, the president requested a report to determine whether these cars pose a security challenge to the US. He received the report in February and has 90 days to review it and chances are that a tariff may be placed on EU cars and parts. This could lead to a major confrontation and the EU is pushed to retaliate. The EU has indicated that it looks to target American goods, mostly agricultural products.

Nord Stream 2

Another major issue is a large pipeline project being constructed between Germany and Russia. The US argues that Germany is feeding Russia with billions of dollars every month. This is despite the fact that Russia is viewed as the enemy. While the US makes sense, Germany does not have an option. This is because Russia is the biggest natural gas supplier in the world. While US has gas, it would be very expensive for it to reach Germany. This is because it needs to be liquified and then transported using large ships.

Huawei

The US has sent a directive to its allies to ignore Huawei when it comes to 5G implementation. The country fears that doing this would leave a backdoor to China to gather important intelligence. Huawei has denied these charges and Germany has said that it has not seen any evidence that supports US allegations. In a recent letter, US ambassador to Germany said that the country will stop receiving intelligence reports from US if it goes ahead with the plans. Instead, he recommended that Germany should consider other companies like Nokia, Ericson, and Samsung. He did not mention America’s Cisco, which provides the same products. If Germany grants Huawei such contract, it may lead to more escalation.

Globalism vs Nationalism

Ideologically, the two parties disagree on global engagement. European Union leaders believe in globalism, where large problems like climate change are addressed together. Trump on the other hand is a nationalist who believes that countries should handle their problems independently. This has made him exit major global views such as the Paris climate agreement, the Iran deal, and the decision to have the US embassy in Jerusalem. He was also supportive of Brexit.

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