Why the US–EU trade deal is a bigger deal for the EU than US

Yahoo

7 days ago

The US and EU have agreed to a trade deal that includes a 15% tariff on most goods from the EU imported into the US.
CSIS director of economics program and Scholl chair in international business Philip Luck and Yahoo Finance Washington Correspondent Ben Werschkul discuss the deal and what it means for the American and European economies.
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The US and EU, we reached this deal. Phil, as an economist, through your lens, good news long term for the American economy, Phil?
I would say good news medium term because it's reduced uncertainty. And I think the biggest thing that was the problem of the liberation day tariffs, the rollouts, and then the will they won't they of of escalating and deescalating was just a complete lack of clarity to industry about what sort of business regime they were going to be operating under. And this provides some clarity. I will say though, I mean, this is a very high tariff. I mean, you know, average tariff rates in the United States were about 2.2% prior to, you know, April 1st. They've gone up a lot. I mean, we're moving towards a place where pretty much all of our major trade of our major trading partners will have tariff rates between probably 20 and 15%. That's going to really increase costs of intermediates and it's going to reduce the competitiveness of a lot of exports. Now, that said, it's not going to be a deal breaker. This is just going to increase costs.
And so one other point I would add I would add as well Josh about this is the effect on the European economy. Capital Economics had a note today that calculates that this deal actually will be a headwind for the European economy is an overall by half a percentage point. That's that's really significant. And that's a lot of why you're seeing such negative reactions here. But I think it's telling how the kind of how mixed folks are and how a lot of people are positive on this deal just because, as was just noted, it's not it's not higher than that. The headline on that capital economics piece was that a bad deal is better than than than what was there before. So I think that's an important part element of this too that this is going to be a clear headwind for America's trading partners, but it's better than what maybe they expected previously.
Ben, can I ask you, have we heard what the member states feel about this over in Europe? Have we have we heard how Germany feels about this? How France feels about this?
Yeah, there's definitely been some negative commentary. France is one that that strikes out there. Their former minister called it a somber day. So there's there's clearly a lot of unhappiness with this deal, especially this 15% rate there. And there is an approval process that that they will go through to go through. But But the overall, I think the overall sense here and you see it in kind of the mixed markets is that there wasn't a better deal in the offing. Trump has has very much stood by these these baseline tariffs. It was they were hoping for zero. Then it was 10%. And now he's very much stuck at 15%. He reiterated that today that his essential global minimum is about 15 to 20%. So there is an approval process. So there's lots of ways this could go sideways, but for certain it's it's it's it's moving forward. This this process for certain.
You know, Phil, one question I had for you as the economist on the panel is why haven't Phil, the tariffs negatively impacted the American economy as much as Phil some might have expected as much as some economists even forecast on this show? One theory, I I want to get your take on this, Phil, is that maybe there are these offsets that we weren't accounting for as much as we should have, whether it's listen, tax bill, AI, lower energy costs, but curious to hear your take.
Yeah, I mean, I think I think some of the commentary was a little over torqued to be the beginning. And I think a lot of that was under the assumption that consumers and businesses would pull back investment and consumption, and that would lead to a real sort of downturn in the economy. That really hasn't happened. The administration has found ways to sort of, you know, slowly increase the temperature of the water if we're the the frog in this analogy. So that really hasn't happened. I mean, look, this is going to be costly. As an economist, this is going to increase inefficiencies. It's going to keep certain businesses in business that are inefficient. It's going to stop other businesses from being as productive as they can because it'll increase the cost of their inputs and reduce their competitiveness in export markets, notably because we have not really gotten lower tariffs from other partners, right? So that conditions is the same for our partners. But then the question is, well, why are we not seeing more immediate effects? A lot of these tariffs really haven't gone into place yet. So for instance, the 50% tariffs on copper, you know, that still hasn't happened. And even once those go into place, you know, they have already telegraphed that those tariffs are going into place. The warehouses are full. There's an enormous amount of copper in the United States right now that has come in and pre-positioned. So we're going to it's going to take some time for all these things to go through the economy. And the last thing I would say is, look, this is a tax. It's a consumption tax, which is going to impact consumers and low-income consumers more than high-income consumers. But the US economy is actually not that trade exposed, about 17% of GDP is trade. So relative to more open economies like Germany, which was just mentioned, which was in a much worse spot in these negotiations, we can absorb these costs. It doesn't mean we should, but we can.