US and EU avert trade war with 15% tariff deal

Straits Times

4 days ago

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US President Donald Trump meets with European Commission President Ursula von der Leyen, in Turnberry, Scotland, on July 27.
TURNBERRY, Scotland - The United States struck a framework trade deal with the European Union on July 27, imposing a 15 per cent US import tariff on most EU goods, half the threatened rate, and averting a spiralling battle between two allies which account for almost a third of global trade.
US President Donald Trump and European Commission President Ursula von der Leyen announced the deal at Mr Trump's luxury golf course in western Scotland after an hour-long meeting that pushed the hard-fought deal over the line, following months of negotiations.
'I think this is the biggest deal ever made,' Mr Trump told reporters, lauding EU plans to invest some US$600 billion (S$769.07 billion) in the United States and dramatically increase its purchases of US energy and military equipment.
Mr Trump said the deal, which tops a US$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 US exporters.
Dr von der Leyen, describing Mr Trump as a tough negotiator, said the 15 per cent 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 Mr Trump said calls for US$750 billion of EU purchases of US 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.
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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 per cent US tariff on car and parts imports now in place.
The baseline 15 per cent 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.
But Mr 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 US would likely come at the bloc's own expense.
Mr Trump retains the ability to increase the tariffs in the future if European countries do not live up to their investment commitments, a senior US administration official told reporters on July 27 evening.
The euro rose around 0.2 per cent against the dollar, sterling and yen within an hour of the deal's being announced.
Mirror of Japan deal
Mr Carsten Nickel, deputy director of research at Teneo, said the July 27 accord 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 US-Japan deal.'
While the tariff applies to most goods, including semiconductors and pharmaceuticals, there are exceptions.
The U.S. will keep in place a 50 per cent tariff on steel and aluminium.
Dr Von der Leyen suggested the tariff could be replaced with a quota system ; a senior administration official said EU leaders had asked that the two sides continue to talk about the issue.
Dr Von der Leyen said 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.
'We will keep working to add more products to this list,' Dr von der Leyen said, adding that spirits were still under discussion.
A US official said the tariff rate on commercial aircraft would remain at zero for now, and the parties would decide together what to do after a US review is completed, adding there is a 'reasonably good chance' they could agree to a lower tariff than 15 per cent.
No timing was given for when that probe would be completed.
The deal will be sold as a triumph for Mr Trump, who is seeking to reorder the global economy and reduce decades-old US 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'.
US officials said the EU had agreed to lower non-tariff barriers for automobiles and some agricultural products, though EU officials suggested the details of those standards were still under discussion.
'Remember, their economy is US$20 trillion... they are five times bigger than Japan,' a senior US official told reporters during a briefing.
'So the opportunity of opening their market is enormous for our farmers, our fishermen, our ranchers, all our industrial products, all our businesses.'
Mr Trump has periodically railed against the European Union, saying it was 'formed to screw the United States' on trade.
He has fumed for years about the US merchandise trade deficit with the EU, which in 2024 reached US$235 billion, according to US Census Bureau data.
The EU points to the US surplus in services, which it says partially redresses the balance.
Mr Trump has argued his tariffs are bringing in 'hundreds of billions of dollars' of revenues for the US, while dismissing warnings from economists about the risk of inflation.
On July 12, Mr Trump threatened to apply a 30 per cent tariff on imports from the EU starting on Aug 1, after weeks of negotiations with the major US trading partners failed to reach a comprehensive trade deal.
The EU had prepared counter tariffs on €93 billion (S$140 billion) of US goods in the event a deal to avoid the tariffs could not be struck. REUTERS