US-EU agree to 15% tariff, avoiding trade war but hitting wallets

Canada News.Net

6 days ago

FRANKFURT, Germany: A major trade agreement between the United States and the European Union has averted an immediate escalation in transatlantic tensions, but at a cost: new tariffs that could raise prices for American consumers and impact European exporters.
Announced during President Donald Trump's visit to his golf resort in Scotland, the deal introduces a 15 percent tariff on most European goods, including cars, computer chips, and pharmaceuticals.
The agreement nixes Trump's earlier threat of a 30 percent tariff if a deal isn't reached by August 1. Still, the 15 percent rate is far higher than the pre-Trump average of about one percent and could prove burdensome for companies and consumers alike.
European Commission President Ursula von der Leyen, who appeared alongside Trump, said the two sides had also agreed to zero tariffs on a selected group of "strategic" goods. These include aircraft and parts, semiconductor equipment, certain chemicals, agricultural products, and critical raw materials, though specific product lists remain to be finalized.
Trump confirmed the deal does not include pharmaceuticals, and von der Leyen clarified that this matter was "on a separate sheet of paper." She added that agricultural tariffs remain in place for some items.
Another major piece of the agreement is a European commitment to purchase US$750 billion (638 billion euros) in American natural gas, oil, and nuclear fuel as part of efforts to reduce reliance on Russian energy. The EU also plans to invest an additional $600 billion (511 billion euros) in the United States, though the source of those funds remains unspecified.
One sticking point remains: Trump's 50 percent tariff on imported steel will stay in place for now. Von der Leyen noted that further talks are planned to address the global steel surplus, set import quotas, and potentially ease existing tariffs.
The new tariff level, even at 15 percent, already has ripple effects. Automaker Volkswagen reported a 1.3 billion-euro ($1.5 billion) loss in the first half of the year due to earlier tariffs. Mercedes-Benz dealers in the U.S. say they're holding 2025 prices "until further notice," though the automaker warned of "significant increases" ahead.
German Chancellor Friedrich Merz cautiously welcomed the deal, calling it a move that prevented "unnecessary escalation" while protecting key interests. Still, business leaders like Wolfgang Niedermark from the Federation of German Industries warned of "immense negative effects" for export-heavy industries.
Economists noted that while the agreement may reduce uncertainty, the lack of formal documentation is a concern. ING's Carsten Brzeski called the deal a tentative step that avoids a larger global economic risk, at least for now.
The U.S. and EU jointly account for about 44 percent of global GDP, trading goods and services worth 1.7 trillion euros ($2 trillion) annually. Trump has long criticized the EU's 198 billion-euro trade surplus in goods, especially in cars, while American firms dominate services like cloud computing and finance.