Investors cautiously welcome US-Europe trade deal
U.S. President Donald Trump announced the United States has struck a framework trade deal with Europe.
The deal includes a 15% tariff on EU goods entering the U.S. and significant EU purchases of U.S. energy and military equipment.
"It's really in line with the Japan deal, and I assume investors will view it positively as they viewed the Japan deal," said Rick Meckler, partner at Cherry Lance Investments in New Vernon, New Jersey.
Optimism over easing trade tensions broadly helped push U.S. stocks to record highs last week and lifted European shares to their highest since early June. Trump's April 2 "Liberation Day" announcement of sweeping global tariffs sent stocks plunging in the immediate aftermath, due to spiking fears about a recession that have since faded.
Hopes for a deal with Europe were reinforced by Trump striking a trade agreement with Japan on July 23.
Still, investors have been bracing for increased volatility heading into August 1, which the U.S. has set as a deadline for raising levies on a broad swath of trading partners.
"The two obvious reactions that you would expect are upside in the euro and upside in equity futures. I don't think equities in particular needed much of an excuse to rally and now they've got one," said Michael Brown, senior research strategist at Pepperstone in London.
The announcement came after European Commission President Ursula von der Leyen traveled to Scotland for talks with Trump to push a hard-fought deal over the line.
In the agreement with Japan, the country's auto sector, which accounts for more than a quarter of its U.S. exports, will see existing tariffs cut to 15% from levies totaling 27.5% previously.
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The Independent
24 minutes ago
- The Independent
European Union assumes its faces 15% tariffs in the US from Friday. But a key text still isn't ready
The European Union is working on the assumption that the United States will impose a 15% tariff on most EU exports from Friday, even though the two sides have yet to complete a key document clarifying how the agreement will operate. Last weekend, U.S. President Donald Trump and European Commission President Ursula von der Leyen reached a political agreement that would see 15% duties imposed on around two-thirds of EU produce, worth around 380 billion euros ($434 billion). The tariffs are set to enter force on Friday, but as of Thursday the two sides were still working on a joint statement that would lay out the terms of their understanding, European Commission spokesman Olof Gill said. The document wouldn't be legally binding. 'It is the clear understanding of the European Union that the U.S. will implement the agreed across the board tariff ceiling of 15%,' Gill said. The commission negotiates trade terms on behalf of the the EU's 27 member countries. Carve outs were agreed for a range of 'strategic' goods like aircraft and aircraft parts, certain chemicals, some drug generics or natural resources. Gill said that 'it is also our clear understanding that the U.S. will implement the exemptions to the 15% ceiling.' 'The U.S. has made these commitments. Now it's up to the U.S. to implement them. The ball is in their court,' Gill said. European wine and spirits won't escape the 15% levy on Friday, but may do later as negotiations on additional exemptions to the new tariff regime continue, he said. Before Sunday's meeting, Trump had threatened the bloc with 30% tariffs, which the EU's top trade official said would effectively mean the end of trade between them. Over the last three months, the commission drew up retaliatory measures worth tens of billions of euros to enact should the talks fail. Those countermeasures are due to take effect on Aug. 7, but Gill said that 'if everything goes as expected,' they would be frozen. 'If we have reached a deal, we don't need the retaliatory tariffs,' he said.
New Statesman
25 minutes ago
- New Statesman
Ursula von der Leyen's deal exposes the delusions of EU boosters
Photo byThe French prime minister François Bayrou said it was a 'dark day' for Europe. Under the trade deal that Donald Trump and European Commission president Ursula von der Leyen announced in Scotland on 26 July, the US would impose a 15 per cent tariff on most European imports, but the European Union would not increase tariffs on American imports in return. According to Bayrou, 'an alliance of free peoples' had 'resolved to submission'. It was definitely a climbdown for the EU. Ever since Trump was re-elected last year and threatened new tariffs on imports to the US, the European Commission had threatened counter-measures – just as it did during the first Trump administration, when it responded to US tariffs on European aluminium and steel with its own tariffs on American products like bourbon. In the end, though, the EU simply accepted the new US tariffs this time – and on top of that, promised to increase purchases of American liquified natural gas and weapons. To be clear, what was agreed in Scotland is a political or 'framework' deal and a lot of the important details have yet to be worked out. In particular, it is not yet clear whether pharmaceuticals – a hugely important sector for the EU and especially Germany – will be included or how much steel will be exempt from tariffs. Moreover, the promises that von der Leyen made to increase investment in the US have already turned out to be empty – there is no way the EU can buy $750bn of American oil and gas in the next few years and it cannot direct companies to invest in the United States. Nevertheless, in the few days since the deal was announced, it has widely been seen as a humiliating European capitulation to Trump. Many critics of deal – especially EU boosters who fantasise about the idea of 'strategic autonomy' or a 'geopolitical Europe' – seem to imagine that the EU could have followed an alternative approach and stood up to Trump. In reality, though, there was little alternative to what Bayrou called 'submission'. Critics of the deal think EU member states undermined von der Leyen and forced her to negotiate from a position of weakness. It is true that some member states, especially Germany and Italy, ultimately backed off from threats of retaliatory measures because they feared that a full-on transatlantic trade war would ultimately hit important sectors of their economies harder than they are now being hit by the new US tariffs. But the idea that the EU had leverage over the US that it had but did not use – and that if it had used it, it could have struck a much better deal – is wishful thinking. As the world's largest trading bloc, the EU has long thought of itself as an economic superpower and prided itself on its ability to negotiate trade deals – that, of course, was one of main arguments why the UK should remain within in the EU. This deal has somewhat undermined that self-image. After all, in May, the UK was able to negotiate a slightly better deal with the Trump administration, with a baseline tariff of 10 per cent. But what really makes the EU weak relative to the US is its vulnerability in security terms. The idea that the EU had leverage over the US that it did not use only makes sense if you think that economics and security are completely separate realms and that security issues are irrelevant to trade negotiations and cannot be linked. But deep down, despite all the tough talk and the threats of retaliation to Trump's tariffs, European politicians knew that taking such a confrontational approach could have consequences for US support for Ukraine – or even for Nato and the US security guarantee to Europe itself. Subscribe to The New Statesman today from only £8.99 per month Subscribe It's striking that this trade deal was being negotiated just as Trump seemed to be becoming increasingly frustrated with Vladimir Putin and more supportive of Ukraine. Earlier in July, Trump had reinstated supplies of US weapons to Ukraine – albeit paid for by Europeans – and threatened new economic sanctions against Russia if Putin did not make progress in negotiations within 50 days. (The day after the EU-US trade deal was announced, Trump said he was now giving Putin even less time.) As tentative as European leaders know Trump's shift on Ukraine is, they do not want to jeopardise it. EU trade commissioner Maroš Šefčovič, who apparently spent hundreds of hours in frustrating negotiations with Trump administration officials, hinted at this in a briefing the morning after the announcement of the deal. He said he could not go into the details of everything that was discussed with Trump in Scotland, but 'it was not just about trade'. In the end, what has made the EU so dependent on the US, and made the EU's 'submission' inevitable, is the war in Ukraine – or, to be more precise, the way that, for the last two and half years since the Russian invasion in 2022, European leaders have insisted that their own security depends on a Ukrainian victory. Related
The Guardian
25 minutes ago
- The Guardian
Canada braces as tariff deadline looms and talks with the ‘chaos machine' in the US drag
After months of tariff threats from the US and escalating trade tensions that have sowed anger in Canada and fractured a once-close alliance, the country is now fast approaching a 1 August deadline to reach a deal with the Trump administration – which has shown no signs of backing down. And observers are keeping a close eye on negotiations this week to determine whether too large a chasm has grown between the countries, resulting in what could be an explosive end to what was decades of free-flowing trade. Canada is also in a highly vulnerable position, as it has closely intertwined its economy with the US's, and is extremely reliant on a low-barrier trade environment, said William Huggins, an assistant professor in economics at McMaster University in Ontario. 'Canada has tried to negotiate sort of forcefully from a position of not acquiescing to every demand, but by the same token, has also realised it's not in the strongest position to do so … We've had to navigate carefully,' said Huggins. The Canadian public is also anxiously awaiting the deadline to strike up a deal. Economists and political scientists say the country's prime minister, Mark Carney, was elected on the belief that he's the right person to be at the helm of negotiations and lead Canada through a tenuous period with their southern neighbour. His successes or failures in this arena could affect public perception – as he has characterised his government as being the most adept in the crisis around its sovereignty due to the tariffs and Donald Trump's persistent claims that he'd like to make Canada the 51st state. '[Carney] is in a situation where he doesn't hold all the cards and whoever we put in was going to have to figure out a way through this … [His] ability to plan is severely limited by the chaos machine that is operating south of the border,' said Dennis Pilon, the chair of the politics department at York University in Ontario. On Monday, Carney said at a news conference on Prince Edward Island that the trade negotiations are at an 'intense pace' and that they are 'complex'. But he projected tentative optimism, stating that the negotiations are 'tough' because the government is standing up for Canadian interests. 'There is a landing zone that's possible but we have to get there. We'll see what happens,' he told reporters. But Trump spoke of the negotiations flippantly when asked by reporters outside the White House last Friday. 'We haven't really had a lot of luck with Canada … Canada could be one where there's just a tariff, not really a negotiation,' he said. So far, much of the talks have happened behind closed doors. There was a glimpse into what could be the dynamic between Carney and Trump when the prime minister had his first meeting with the president in the Oval Office in early May. There were positive tones in both initially offering praise for each other, but the encounter quickly grew tense as Trump repeated his annexation claims, which were subsequently rebuffed by Carney. Since March, Trump has imposed several tariffs on Canadian goods and energy resources. There is a 25% tariff on all goods, excluding potash and energy products. But there's separately a 10% tariff on energy resources, including potash. Additionally, there's a further 50% tariff on steel and aluminum imports and a 25% tariff on autos and auto parts. At this stage, the tariffs have seemingly not delivered a significant blow to Canada's economy, but that could change quickly. The Royal Bank of Canada noted in its June forecast that nearly 90% of Canadian goods are exempt from tariffs under the United States-Mexico-Canada Agreement (USMCA), the free trade deal that replaced Nafta in 2020 and which provides a degree of insulation. In an assessment published by the Toronto-Dominion Bank (TD) on Tuesday, it reported that energy exports have not been significantly affected by the tariffs, as most exports are compliant under the USMCA, and are therefore exempt from tariffs. Some of the insulation so far from tariffs could be from opening Canada up to other markets. TD said that in the past four months, Canadian businesses rapidly moved to reorient supply chains and export to non-US markets. Now about 30% of exports go outside the US – a level not seen since the pandemic, when TD notes there was disorientation in trade. But TD also warned that the negative effects of the tariffs might be beginning to emerge. It said that Canadian exports to the US are 'generally underperforming' in tariff-targeted industries, particularly steel and automaking. Canada's auto exports fell to levels not seen since late 2022, following the April imposition of tariffs. Automakers have also 'slashed' production in response, it said. Andrea Lawlor, an associate professor of political science at McMaster University, said that while there haven't been many layoffs or a complete reorientation of production lines yet, industries targeted by tariffs are preparing to do so. Lawlor also said that Carney has been prudent in his negotiation strategy so far, and right in waiting for deals to be brokered between the US and other nations, as they were this month with Japan and the EU, to help inform Canada's strategy. Sign up to This Week in Trumpland A deep dive into the policies, controversies and oddities surrounding the Trump administration after newsletter promotion And despite concerns about marred relationships with First Nations people, pushing forward controversial infrastructure legislation and his quick scrapping of Canada's digital services tax – which many, including top former diplomats, viewed as fawning capitulation toward Trump – the prime minister is still enjoying fairly positive polling in his term's infancy. Abacus Data reported at the end of June that 52% of Canadians surveyed approve of the Carney government. The research firm states it shows that his post-election honeymoon period is 'far from over'. Lawlor said the best outcome for Carney in the negotiations is a favourable trade deal – however, there has been signalling from Carney, in his discussion of 'tough' talks so far, that Canadians may have to accept a baseline of tariffs. 'Many Canadians just simply will not be satisfied if that is the outcome,' she said. But due to Carney facing limited criticism of his interactions with the Americans so far, Lawlor said she believes the prime minister will not face extreme negative blowback if he doesn't trounce tariffs for good this week. But he will be more vulnerable if the tariffs start to place downward pressure on multiple industries, she said. As Canadians are waiting and watching for the Friday deal deadline, the real fears are around the cementing of a new world order and whether long-term business and consumer decisions need to be made in response, said Preetika Joshi, an assistant professor at McGill University in Quebec that specialises in taxation. 'If you were a business owner and you knew Trump is going to be in power for only three, four years, would you necessarily make big, significant changes in your supply chain … or would you just wait it out?' she said. But given some grim messaging from those close to Carney – Canadians might be facing tough decisions. Dominic LeBlanc, the federal minister responsible for Canada-US trade, said last week there's a lot of work ahead of them and minimised the 1 August deadline. 'We're going to continue to work toward the 1 August deadline,' said LeBlanc to reporters in Washington. 'But all of these deadlines are with the understanding that we'll take the time necessary to get the best deal,' he said. Deal or no deal, the negotiations might reveal that there isn't a best-case scenario, said Joshi. 'What we were used to before Trump, where there were very little tariffs, that reality is slightly over,' she said. 'We'll have to wait and see … but the reality is that there are going to be some tariffs.'
