Insights 
VT 
The US and EU have initiated trade discussions, focusing on tariffs, digital trade, and investment. Reports suggest that USTR Greer has mentioned the possibility of reinstating 20% tariffs on the EU.
The negotiations are anticipated to be complex, as European leaders have rejected a 10% threshold similar to the deal the UK accepted. Talks this week also involved potential agreements with Japan and South Korea, but it is reported that Japan has withdrawn.
EU Meeting Plans
The EU trade commissioner had a conversation with Greer and expressed a desire to hold a meeting next month in Paris. The outcome of these talks remains uncertain, reflecting the current dynamics between these global entities.
The article outlines a fresh chapter in talks between the United States and the European Union, with tariffs, digital regulations, and cross-border investments at the centre of the agenda. Greer, the US Trade Representative, has floated the idea of bringing back tariffs of up to 20% on EU goods, a clear shift in stance that reopens a debate most had assumed was closed. European leaders have already knocked back a 10% ceiling—something the UK previously accepted as part of their own trade arrangements—indicating they’re not interested in making concessions on those terms.
This week’s discussions expanded beyond Europe, drawing in South Korea and Japan as part of a broader strategy. Japan, however, appears to have chosen to stay out, potentially due to dissatisfaction with the terms being floated or a preference to wait until dealings with the US stabilise. The EU’s trade commissioner followed up with an invitation to meet again next month in Paris, but no commitments have been confirmed, leaving several threads unresolved.
Trade Talks and Market Implications
For those of us who look closer at price reactions and volatility expectations, the direction of these talks offers something more direct. What’s at play isn’t just bureaucracy or headline drama—it’s clarity on whether tariffs will spike again, and that matters for everything from forward curves to implied volatility. If Greer pushes forward with the higher tariff rate, it could reprice multiple sectors almost overnight, triggering repricing across correlated asset classes. Our immediate concern isn’t the politics—it’s whether we can anticipate direction from noise, as that’s going to dictate value in positions that stretch beyond a few days.
The rejection of a 10% threshold by European representatives tells us there’s little appetite for compromise based on pre-existing models. They’re writing their own version of the deal this time, and if the US decides to escalate, we may see retaliatory measures that add further constraints on both currency movement and sector-specific exposure. For instruments tied to international trade or export-heavy equities, we would expect positions to be tested broadly across implied levels, with higher premiums currently building in the front end.
With Japan stepping back, the probability of a trilateral deal dries up. That removes potential hedging options in East Asia that might have balanced exposure. It also narrows the field for derivative participants who tend to use regional stability as a signal for basis movement. If these negotiations extend into next month without resolution, there is a real chance implied rates will rise further due to uncertainty alone.
From our view, the coming weeks should be used not to chase moves but to observe which parties are most likely to make binding commitments. That, in turn, guides which legs of the curve carry weight. Spread sensitivities will shift depending on what’s said behind closed doors in Paris. The trades that make sense now are those that are lean on assumption and heavy on protection.
