EU-US tariffs: five key takeaways from the trade deal

The Guardian

a day ago

Donald Trump has announced a deal with the EU imposing tariffs of 15% on most goods entering the US from Europe and requiring the bloc to make huge investments in US energy products, averting a trade war between the two of the world's largest economies.
Though the 15% rate is half of what Trump had threatened, many will be disappointed by it. When the UK accepted tariffs of 10% in its trade deal with the US in May, it was widely reported that European leaders considered it to be a bad deal.
Brussels also agreed to buy, over three years, $750bn (£560bn) worth of oil, gas, nuclear fuel and semi-conductors, including liquified gas, while at the same time agreeing to invest $600bn (£446bn) in the US, including purchases of military equipment, according to Trump.
One analyst suggested the deal was a 'big win' for the US president while it was less clear what the EU gained. 'A 15% tariff on European goods, forced purchases of US energy and military equipment and zero tariff retaliation by Europe, that's not negotiation, that's art of the deal.,' Prashant Newnaha, senior Asia-Pacific rates strategist at TD securities said.
Here are five key takeaways:
The US will keep in place a 50% tariff on steel and aluminium according to Trump, although European Commission chief Ursula von der Leyen said the tariffs on steel could be replaced with a quota system with further negotiation.
There was also confusion over pharmaceuticals after Trump said the sector would not be included, however a senior US official later confirmed that they were in fact covered by the 15% tariff.
According to von der Leyen, zero tariffs will apply to a range of sectors including 'all aircraft and component parts, certain chemicals, certain generics, semiconductor equipment, certain agricultural products, natural resources and critical raw materials'. But there was ongoing uncertainty for some industries – Sunday's announcement did not clear up what tariffs European wine and spirits producers will face in the US.
Carsten Nickel, deputy director of research at Teneo, said Sunday's 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.'
On Sunday, a senior US administration official told reporters in Washington that Trump retained the ability to increase the tariffs in the future if European countries do not live up to the investment commitments contained in the deal.
The deal creates a division on the island of Ireland, as traders in Northern Ireland can sell into the US on a 10% tariff rate, courtesy of the UK deal, while their neighbours in Ireland will be hit with the 15% rate.
The disparity will make for difficult diplomatic conversations over guarantees to maintain stability on the entire island in the Good Friday agreement, which had already been rocked by the fallout from Brexit, when customs arrangements involving Northern Ireland became a huge headache for EU and UK negotiators.
Ireland's deputy prime minister, Simon Harris, said he 'regretted' the 15% tariff rate but said 'certainty' was important.
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. German carmakers, VW, Mercedes and BMW were some of the hardest hit by the 27.5% US tariff on car and parts imports now in place.
But the powerful BDI federation of industrial groups was vocal in its disappointment. 'Even a 15% tariff rate will have immense negative effects on export-oriented German industry,' said Wolfgang Niedermark, a member of the federation's leadership. The country's VCI chemical trade association said the accord left rates 'too high'.
The impact of the tariffs is likely to be substantial on some companies; automaker Volkswagen said it suffered a 1.3bn euro ($1.5bn) hit to profit in the first half of the year from the higher tariffs.
Though von der Leyen framed the agreement as a 'good deal' that would bring 'stability' and 'predictability', Brussels' original aim in the talks was for a 'zero-for-zero' tariff deal and tariffs remain far higher than historically.
'The crippling uncertainty is largely over, the deal is bearable for the EU,' said Holger Schmieding, chief economist at Berenberg Bank. 'Trump can claim that the asymmetric deal is a 'win' for him. But of course, the outcome is still bad relative to the situation that prevailed before Trump started his trade wars.'
US consumers are also likely to bear the costs of tariffs as companies pass on the expense in increased prices, many economists have warned.
With agencies