US and EU strike deal with 15% tariff to avert trade war

Reuters

7 hours ago

TURNBERRY, Scotland, July 27 (Reuters) - The United States struck a framework trade agreement with the European Union on Sunday, imposing a 15% import tariff on most EU goods, half the threatened rate, and averting a bigger trade war between two allies that account for almost a third of global trade.
U.S. President Donald Trump and European Commission President Ursula von der Leyen announced the deal at Trump's luxury golf course in western Scotland after an hour-long meeting that pushed the hard-fought deal over the line.
"I think this is the biggest deal ever made," Trump told reporters, lauding EU plans to invest some $600 billion in the United States and dramatically increase its purchases of U.S. energy and military equipment.
Trump said the deal, which tops a $550 billion deal signed with Japan last week, would expand ties between the trans-Atlantic powers after years of what he called unfair treatment of U.S. exporters.
Von der Leyen, describing Trump as a tough negotiator, said the 15% tariff applied "across the board", later telling reporters it was "the best we could get."
"We have a trade deal between the two largest economies in the world, and it's a big deal. It's a huge deal. It will bring stability. It will bring predictability," she said.
The deal, which Trump said calls for $750 billion of EU purchases of U.S. energy in coming years and "hundreds of billions of dollars" of arms purchases, likely spells good news for a host of EU companies, including Airbus, Mercedes-Benz and Novo Nordisk, if all the details hold.
The baseline 15% tariff will still be seen by many in Europe as too high, compared with Europe's initial hopes to secure a zero-for-zero tariff deal, though it is better than the threatened 30% rate.
German Chancellor Friedrich Merz welcomed the deal, saying it averted a trade conflict that would have hit Germany's export-driven economy and its large auto sector hard. German carmakers, VW, Mercedes and BMW were some of the hardest hit by the 27.5% U.S. tariff on car and parts imports now in place.
But Bernd Lange, the German Social Democrat who heads the European Parliament's trade committee, said the tariffs were imbalanced and the hefty EU investment earmarked for the U.S. would likely come at the bloc's own expense.
The euro rose around 0.2% against the dollar, sterling and yen within an hour of the deal's being announced.
The deal mirrors key parts of the framework accord reached by the U.S. with Japan last week, but like that deal, it leaves many questions open, including tariff rates on spirits, a highly charged topic for many on both sides of the Atlantic.
Carsten Nickel, deputy director of research at Teneo, said it was "merely a high-level, political agreement" that could not replace a carefully hammered out trade deal: "This, in turn, creates the risk of different interpretations along the way, as seen immediately after the conclusion of the U.S.-Japan deal."
"We are agreeing that the tariff ... for automobiles and everything else will be a straight-across tariff of 15%," Trump said, but he quickly added that a 50% U.S. tariff on steel and aluminum will remain in place. Von der Leyen said that tariff would be cut and replaced with a quota system.
Von der Leyen said the rate also applied to semiconductors and pharmaceuticals, and there would be no tariffs from either side on aircraft and aircraft parts, certain chemicals, certain generic drugs, semiconductor equipment, some agricultural products, natural resources and critical raw materials.
Trump appeared to suggest pharmaceuticals would not be covered, leaving some question about that aspect of the deal. No fact sheet was immediately issued by the White House.
"We will keep working to add more products to this list," von der Leyen said, adding that spirits were still under discussion.
Eric Winograd, chief economist at AllianceBernstein in New York, noted the similarity with Japan's U.S. deal.
"We will need to see how long the sides stick to the deal. From a market perspective, it is reassuring in the sense that having a deal is better than not having a deal," he said.
The deal will be sold as a triumph for Trump, who is seeking to reorder the global economy and reduce decades-old U.S. trade deficits, and has already reached similar framework accords with Britain, Japan, Indonesia and Vietnam, although his administration has not hit its goal of "90 deals in 90 days."
He has periodically railed against the European Union, saying it was "formed to screw the United States" on trade.
Arriving in Scotland, Trump said the EU wanted "to make a deal very badly" and said, as he met von der Leyen, that Europe had been "very unfair to the United States".
Trump has fumed for years about the U.S. merchandise trade deficit with the EU, which in 2024 reached $235 billion, according to U.S. Census Bureau data. The EU points to the U.S. surplus in services, which it says partially redresses the balance. Now he argues, his tariffs are bringing in "hundreds of billions of dollars" of revenues for the U.S., while dismissing warnings from economists about the risk of inflation.
On July 12, Trump threatened to apply a 30% tariff on imports from the EU starting on August 1, after weeks of negotiations with the major U.S. trading partners failed to reach a comprehensive trade deal.
The EU had prepared countertariffs on 93 billion euros ($109 billion) of U.S. goods in the event there was no deal, and Trump made good his 30% tariff threat.
Some member states had also pushed for the bloc to use its most powerful trade weapon, the anti-coercion instrument, to target U.S. services in the event of a no-deal.