Europe Welcomes US Trade Fight Pause Despite Critic Warnings

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5 days ago

(Bloomberg) -- European capitals defended the trade deal struck with President Donald Trump, which will see the European Union accept a 15% tariff on most of its exports to the US while reducing levies on some American products to zero.
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European Commission President Ursula von der Leyen, who met with Trump in his golf club in Turnberry, Scotland, on Sunday, hailed the agreement for the stability and predictability it will offer businesses and consumers. The EU knew that the deal would favor the US, but von der Leyen urged reporters to 'not forget where we came from,' referencing tariff rates Trump threatened that were as high as 50%.
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The lower rate came as a relief to member states that are dependent on exports, especially Germany, which exported $34.9 billion of new cars and auto parts to the US in 2024.
'The agreement has succeeded in averting a trade conflict that would have hit the export-oriented German economy hard,' German Chancellor Friedrich Merz said in a statement late Sunday. 'This has enabled us to safeguard our core interests, even if I would have liked to have seen further easing in transatlantic trade.'
Without a deal, Bloomberg Economics estimated that the total US average effective tariff rate would rise to nearly 18% on Aug. 1 from 13.5% under current policies. The new deal brings that number down to 16%.
Prior to Trump's latest trade fight, the EU estimated the average tariff rate to be about 1% on both sides.
The pact removes a major risk for markets and the global economy, given the transatlantic partners did €1.7 trillion ($2 trillion) worth of cross-border commerce in 2024. European stocks and US equity futures climbed on Monday with the Stoxx 600 index gaining 0.7%.
Industry officials in Germany, however, warned that the deal leaves the auto industry exposed and will make companies in Europe less competitive.
'The agreement is an inadequate compromise and sends a disastrous signal to the closely intertwined economies on both sides of the Atlantic,' said Wolfgang Niedermark, a member of the executive board of Germany's BDI industry federation. 'The EU is accepting painful tariffs. Even a 15% tariff will have immense negative consequences for Germany's export-oriented industry.'
France, which took a more hawkish approach to the negotiations, highlighted the stability the agreement would bring, but also recommended triggering the EU's anti-coercion instrument, which would initiate a massive retaliation against the US, hitting American technology companies and blocking US firms from public procurement projects in Europe.
'Let's be clear: the current situation is not satisfactory and cannot be sustainable,' French Minister for European Affairs Benjamin Haddad said in a social media post. 'The free trade that has brought shared prosperity to both sides of the Atlantic since the end of the Second World War is now rejected by the United States, which is choosing economic coercion and complete disregard for WTO rules.'
Dutch Minister for Foreign Trade Hanneke Boerma said the deal was 'not ideal' and called on the commission to continue negotiations with the US.
Hungarian Prime Minister Viktor Orban, who has long been a thorn in the sides of the Brussels' institutions, took an even tougher line, in part criticizing von der Leyen while praising the American president.
'What's clear is that this isn't a deal Donald Trump struck with Ursula von der Leyen,' Orban said in an online interview with a pro-government influencer on Monday. 'Donald Trump ate Ursula von der Leyen for breakfast. The American president is a heavyweight negotiator, Madam President is featherweight.'
Slovak Prime Minister Robert Fico, who typically joins Orban in criticizing the EU, said that 15% is 'a good negotiation result,' though he warned that the devil is 'hidden in the details.'
Slovakia's car industry accounts for about 10% of the country's GDP and is home to plants owned by VW, Stellantis, Kia and Jaguar Land Rover, plus an extensive network of suppliers.
Trade accords typically require years of negotiations and can run thousands of pages long. The deal reached between the EU and US was thin on details and so far hasn't produced any written details.
'The focus will now turn to interpretation and implementation risk, posing a mix of political and technical questions,' Carsten Nickel, deputy director of research at Teneo, wrote in a note. 'Given the nature of the deal, major uncertainties are likely to persist.'
The EU agreed to purchase $750 billion in American energy products, invest $600 billion in the US on top of existing expenditures, open up countries' markets to trade with the US at zero tariffs and purchase 'vast amounts' of military equipment, Trump said.
Key to getting the 15% rate to apply to pharmaceuticals and semiconductors was the bloc's promise to make US investments, according to people familiar with the matter.
Clemens Fuest, president of Germany's Ifo Institute for Economic Research, called the deal a 'humiliation' that reflects the imbalance of power between the EU and US.
'The Europeans need to wake up, focus more on economic strength and reduce their military and technological dependence on the US,' Fuest said on social media. 'Then they can renegotiate.'
French Prime Minister Francois Bayrou had even stronger words when discussing the new deal.
'It's a dark day when an alliance of free peoples, united to affirm their values and defend their interests, opts for submission,' he wrote on social media.
--With assistance from Kamil Kowalcze, Alberto Brambilla, Zoltan Simon, Daniel Hornak, Sarah Jacob, James Regan and William Wilkes.
(Updates with industry comment in the ninth paragraph.)
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