LONDON (Dispatches) - While global markets would hail a U.S.-China trade deal, fears are growing that the European Union could be the fall guy in any breakthrough, which would allow Donald Trump to turn his attention to German cars and other European goods.
Investors thinking of chasing a rally on a trade accord through European trade proxies, such as Germany’s export-heavy DAX index or the continent’s luxury names, should probably think twice, analysts believe.
For trouble could come in a lot of different forms.
Alicia Garc?a-Herrero, Chief Economist at Natixis for Asia Pacific, and a researcher at the Bruegel think-tank, is among those who have warned that a deal "could cost Europe dearly” if China substitutes a large part of its European imports for U.S. goods in a bid to appease the Trump administration.
There is a lot at stake. European-listed firms expect 456 billion euros ($521 billion) in total revenue from China in 2019, with luxury brands and automakers the most exposed sectors, a Refinitiv analysis of company data shows.
Vincent Deluard, global macro strategist at INTL FCStone, said that in the case China and the United States fail to clinch a deal, Europe could be flooded with cheap Chinese goods.
"Europe stands to lose the most when the truce expires on March 1st as China would surely dump billions of discounted goods on the old continent,” Deluard wrote.
In 2017, China exported goods worth 374 billion euros to the EU and 505 billion dollars to the United States.
Another dire scenario sketched out by Deluard would be a bitter lose-lose for Europe and arguable win-win for Trump: "Imposing tariffs on European cars and reaching a deal with China could allow the Trump administration to claim two victories at the same time”.
Many investors fear the immediate relief of a China-U.S. deal could be swiftly followed by a bitter confrontation between the EU and its closest ally.
While Germany takes the lion’s share of the EU’s trade surplus with the United States, over 63 billion dollars in 2017, other European countries such as Ireland, Italy or France have a lot to lose if tariffs are imposed on European goods.

 Analysts trying to decipher the U.S. president’s strategy believe that a confrontation with the EU is a probable next step following the revamping of the North American Free Trade Agreement and his current efforts to slash the U.S. trade deficit with China from a record 375 billion dollars in 2017.