Insights 
VT 
The US and EU are nearing a deal to impose 15% tariffs on certain goods. The US would waive tariffs on products like aircraft, spirits, and medical devices. Meanwhile, the EU may agree to reciprocal levies to prevent US tariffs from rising to 30% on August 1.
The EU is also preparing a possible EUR 93 billion package of retaliatory tariffs, reaching up to 30%, in case no agreement is reached by August 1. Reuters reports that an EU diplomat has stated Brussels plans to vote on this package on Thursday.
Usage Of Anti Coercion Instrument
A majority of EU members are expected to support using an anti-coercion instrument if there is no US trade deal and US tariffs increase to 30%. Brussels seeks concessions, but it remains uncertain whether the US will negotiate on items such as aircraft, spirits, and medical devices.
We see the approaching August 1 deadline as a prime opportunity to trade volatility rather than direction. The situation presents a binary outcome, which typically causes options premiums to increase as uncertainty builds. Traders should look to establish positions that benefit from a sharp price movement, regardless of the final decision.
The impact will be most concentrated in the specific sectors identified in the report. With annual US-EU aircraft trade valued at over $40 billion, and the spirits trade worth billions more, companies in these industries will see heightened stock price fluctuation. Historical data from 2018 shows American whiskey exports to the EU dropped nearly 30% after retaliatory tariffs were imposed, demonstrating the direct and immediate economic effect.
Market Reaction And Trading Strategies
Broader market indices will also react strongly, and we can look to the US-China trade war for a historical parallel. During that period, the VIX index, a key measure of market fear, repeatedly surged over 40% in the days surrounding tariff deadlines and announcements. We expect similar behavior in the VIX and its European equivalent as traders hedge against the fallout from a potential failure to secure an agreement.
Given the difficulty in predicting whether the administration led by the former president will concede, strategies like long straddles or strangles on key sector ETFs or index funds are advisable. This allows a trader to profit from the increased volatility without needing to guess the outcome of the negotiations. The EU’s vote on Thursday regarding the retaliatory package will be a critical near-term event, likely triggering the first major wave of market movement.
