EU sees progress towards US trade deal with 15% tariffs
Brussels
Brussels is close to agreeing a trade deal with the US that will slap 15 percent tariffs on EU imports to America, diplomatic sources have told the Telegraph.
If approved, the deal will essentially halve the 30pc tariffs threatened by Donald Trump to enter into force on August 1. The agreement is similar to a pact struck between the US and Japan inrecent weeks.
'The current state of play on the table is a 15 percent base tariff,' a diplomat said after EU member states were briefed on the talks by theCommission.
The diplomat said the decision would essentially come down to approval from Donald Trump. A source close to the US administration said the White House was considering the proposal.
Some EU member states are pushing for the bloc to prepare to punish the US if the proposals are rejected.
France used the 'Coreper' meeting of national ambassadors to call for the immediate introduction of the bloc's much-vaunted 'trade bazooka', which allows the Commission to legally fight back with retaliatory tariffs.
Germany also appealed for the system to be prepared if the EU and US fail to hammer out a deal to end their minitrade war.
'Regarding countermeasures, the Commission explained the merging of the first and second lists: the total will come at a value of €93 billion, with tariffs up to 30 percent to mirror US,' the diplomat said. German carmakers will be able to cope if Donald Trump imposes 15 percent tariffs on their exports, a leading economist has said.
Andrew Kenningham, chief Europe economist at Capital Economics, said: 'German auto manufacturers will be relieved if it is confirmed that the sector will face tariffs of 'only' 15pc rather than 25pc.
'While this will still dampen German exports it is unlikely to be a knock-out blow to the sector. 'Meanwhile, reports suggest that aircraft, medical equipment and spirits may be exempt. Together these sectors account for only 8 percent of total EU exports to the US so do not shift the dial much at a macroeconomic level.
We don't think the reported deal will have a major influence on the outlook formonetary policy.
'At tomorrow's ECB press conference, President Lagarde won't get carried away, and not just because the deal is not yet over the line.
'While the agreement would avoid a damaging escalation of trade barriers, it would be slightly worse for the economy than the assumptions underlying the ECB's baseline forecasts published in June.'
Meanwhile, European stocks climbed on Wednesday, boosted by hopes of further progress in trade talks after the US struck a deal with Japan.
The FTSE 100 index closed 0.4pc, at 9,061.49, a record closing peak. It had earlier hit a record high of 9,080.09.
The FTSE 250 closed up 0.4pc, at 22,013.49, and the AIM All-Share closed up 0.5pc, at 773.99.
In Europe, the Cac 40 in Paris advanced 1.5pc, while the Dax 40 in Frankfurtgained 0.8 percent.
Wall Street's main indexes have moved higher after the Financial Times reported that the US and the European Union are closing in on a 15 percent tariff deal.
Compared to the start of trading this afternoon, the Dow Jones Industrial Average is up 0.9 percent, the S&P 500 is up 0.6 percent and the Nasdaq is up 0.2 percent .
Eurozone government bond yields are mixed this afternoon, as investors weigh what Japan's trade deal with Washington means for hopes of further agreements.
Germany's 10-year government bond yield, the euro area's benchmark, rose to 2.605 percent, from 2.592 percent.
Germany's 2-year government bond yield – more sensitive to expectations for European Central Bank policy rates – was little changed at 1.822pc.
On Thursday, the European Central Bank is expected to keep interest rates on hold, while awaiting a possible trade deal between Washington and Brussels. Meanwhile, analysts are trying to assess the rate outlook amid geopolitical and economic uncertainties.
'There are downside risks (for the economy and the rate outlook) from trade tensions, but Europe will also be spending a lot on defence and infrastructure,' said Bas van Geffen, a strategist at RaboBank.
'There will be more inflationary pressure from that side. Meanwhile, we are still seeing some wage pressure in Europe.'
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