U.S. trade deal offers initial relief but leaves Europe on the backfoot

CNBC

4 days ago

After an initial sigh of relief at the U.S. and European Union avoiding further escalation by striking a trade agreement, concerns have grown that the framework deal is "unbalanced" and leaves Europe on the backfoot.
The two trading partners on Sunday announced an agreement that includes a 15% tariff rate on most EU goods to the U.S.
Some goods like aircraft components and certain chemicals are not set to be hit by tariffs, while autos will see duties reduced to the 15% rate. The agreement also includes provisions for the EU purchasing U.S. energy and increasing its investments in the country.
The agreement halves the 30% tariff rate U.S. President Donald Trump had threatened the EU with and avoids any further escalation through for example countermeasures. Yet analysts and economists remain cautious as to the impact on both sides as negotiations are still set to take place.
"It's a climb down from a much worse place," Cailin Birch, global economist at The Economist Intelligence Unit, told CNBC's "Europe Early Edition" on Monday. However, she noted, "a 15% tariff is still a big escalation from where we were pre-Trump 2.0."
Birch also pointed out that a lot of uncertainty remains, with details about the steel and pharmaceutical sector still being unclear.
European leaders struck similar notes overnight, with German Chancellor Friedrich Merz saying that while the EU was able to protect its core interests, he would have welcomed further easing of transatlantic trade.
France's minister for Europe, Benjamin Haddad, meanwhile said in a Google-translated social media post that while the deal would bring "temporary stability" to some sectors, it is "unbalanced" overall.
Holger Schmieding, chief economist at Berenberg, warned that while the "crippling uncertainty" was over, the damage for Europe is more frontloaded in comparison to the long-term impact on the U.S.
"The deal is asymmetric. The US gets away with a substantial increase in its tariffs on imports from the EU and has secured further EU concessions to boot. In his apparent zero-sum mentality, Trump can claim that as a "win" for him," he said.
As it will take some time for U.S. consumers to feel the impact of tariffs, Trump's supporters may not immediately realize they are being hurt by the president's policies, Schmieding explained. This may encourage Trump to continue to pursue economic policies that are "bad" for the U.S., he added.
The Economist Intelligence Unit's Birch meanwhile pointed out that the U.S. also did not get everything it may have wanted from the deal.
"Both sides are, are kind of set back a bit from this deal," she said. "The U.S. didn't make any headway on a lot of issues that have in recent history been critical to their trade approach to the EU. So agricultural standards, the tech industry regulating standard that has been a big bugbear, there was no real mention of those standards whatsoever," Birch explained, acknowledging that the deal is not yet done.