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EU-US tariffs: five key takeaways from the trade deal EU-US tariffs: what is in the deal, what is not and who are the winners and losers?
(about 13 hours later)
Donald Trump and Ursula von der Leyen announced a deal on Sunday, but questions remain over what the finished picture will beDonald Trump and Ursula von der Leyen announced a deal on Sunday, but questions remain over what the finished picture will be
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. The EU and US have struck a deal that will see tariffs of 15% on most of the bloc’s exports to the US, averting a trade war between two of the world’s biggest economic powers.
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. France has consistently urged Brussels to be tougher, with ministers, taking to the airwaves on Monday complaining that Brussels has capitulated.
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. So what is in the deal, what is not and who are the winners and losers?
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. 1. The deal in a nutshell
Here are five key takeaways: The centrepiece is a 15% baseline tariff on EU exports to the US, with the exception of steel which is still being taxed at 50%. Car imports, which are being taxed at 27.5% can be sold – from Friday – at a 15% rate.
1. Some uncertainty remains for now The EU has also committed to buying $750bn (£560bn) in energy from the US over three years and has sweetened the look of the deal by aggregating all the known investment commitments and claiming they are going to invest $600bn (£450bn) into the US. This allowed Trump to declare the deal bigger than Japan’s which promised $550bn of investments.
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. In all, the tariffs will apply to 70% of EU exports worth €380bn a year.
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. In the other direction, US exports to the EU including cars, currently at 10%, will be duty free.
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. 2. And the winner is?
2. Trump could yet change the terms of the deal Donald Trump. Many financial institutions have remarked on what they believe is an “asymmetrical deal” that imposes tariffs of 15% on most EU exports including cars; involves the EU buying $750bn worth of energy and ends a decades old World Trade Organization agreement that pharmaceuticals are traded at zero percent tariff.
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.” 3. What are the French saying?
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. Sacré Bleu. The French trade minister, Laurent Saint-Martin, criticised the EU’s handling of the negotiations, saying the bloc should hit back in what he saw as a power struggle initiated by Trump. “Donald Trump only understands force,” he told France Inter radio. “It would have been better to respond by showing our capacity to retaliate earlier. And the deal could have probably looked different.”
3. Divisions in Ireland The French prime minister, François Bayrou, said the deal represented a dark day for the EU.
4. Can the French stop the deal?
The French have been talking tough throughout, but barring Hungary’s Viktor Orbán, they are on their own. The European Commission has bloc-wide competency to make policy and sign deals on trade so no one country can veto the US deal. France’s protests are seen as political and are not expected to derail the deal
5. When does the deal come into force?
The new US tariffs apply from Friday. The list of zero rated tariffs and further sectoral tariffs on steel, wines and spirits will require weeks and perhaps months of negotiation.
The next step, expected on Friday, is a joint statement, similar to that of the UK’s in early May, which must then be turned into legal text. This process could take two months, if the UK’s experience is anything to go by.
At the same time Trump is expected to sign a series of executive orders putting the deal into legal effect in the US. It will not be binding in the EU which will have to create a legal instrument or international agreement to bring it into force. This could take weeks.
6. What is the European Commission saying to defend the deal?
The alternative to Sunday’s deal was a trade war, the European trade commissioner ,Maroš Šefčovič, said on Monday, underlining just how close Trump came to walking out of the room.
He spoke about the “very intense” atmosphere in the ballroom at Trump’s Scottish golf resort and how European commission chief, Ursula Von der Leyen had kept Trump, who had already told reporters he was in a bad mood, in the room.
Insiders say he started out insisting he would go ahead with a planned 30% tariff on Friday, and then demanded 21% before finally settling on 15%.
“We did our utmost to keep our member states involved and informed every step of the way”, since Trump announced his “liberation day” tariffs on 2 April, said Šefčovič.
“If some still believe we can return to the pre 2 April situation and the agreement struck between the US and its trading partners over the number of weeks … it’s quite obvious that the world that was there before the 2 April has gone,” he added.
7. What are the winning sectors?
Pharmaceuticals will remain zero-rated this Friday until such a time that Trump does impose tariffs.
He has threatened them this week.
But under the Turnberry golf resort agreement he has committed to not imposing tariffs of more than 15% on pharma from the EU.
This is a win for the EU. If he breaks his word retaliation would be likely.
There will also be matching zero tariffs on a range of goods including aircraft and aircraft parts, some chemicals, some generics, semiconductor equipment, certain agricultural products, natural resources and critical raw materials.
The exact list is expected to be published before, or on, Friday.
8. What about wine and spirits and agrifood?
Negotiations are ongoing with talks more advanced on spirits, according to EU officials. This will be welcome news for Irish distilleries and will mean extra lobbying from Europe’s greatest winemakers in France, Italy, Germany, Spain and Portugal. 
Agriculture remains protected from US imports that do not comply with EU rules. But the EU has eliminated tariffs on some agrifoods it cannot source itself including some nuts, some processed fish and pet food. It is also increasing the quota on bison allowed into the EU at a favoured tariff.
9. Divisions in Ireland
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 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.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.
4. Gloom in German industry
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.
5. Tariffs remain much higher than they have been historically
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