EU facing potential 35% tariffs under Trump's threat
The United States and the European Union have reached a significant trade agreement, marking a new phase in transatlantic commerce. Here's a breakdown of the key details:
Tariff Rates
Under the agreement, a 15% tariff ceiling has been established on most EU exports to the U.S. This is lower than the previously considered 20% to 50% rates but higher than recent historical levels. Certain strategic products, such as aerospace, some chemicals, semiconductors (in the finished form, but not equipment), some agriculture and food products, and natural resources, including critical-resource minerals, will remain at zero tariffs in both directions.
Investments and Commitments
The European Commission has committed to large-scale investments and purchases of American energy and military equipment. However, only the energy investment aspect has been confirmed by the EU. The agreement is not legally binding, and each side must implement the political commitments through their own legal processes. The EU's implementation pathway is more complex due to requiring coordination with member states and potential procedural delays.
Potential Consequences for Non-Compliance
The deal reduces policy uncertainty and downside risks to European growth, but concerns remain about EU competitiveness and potential future tariffs. President Trump has warned that failure by the EU to fulfill investment commitments could lead to increased tariffs under U.S. trade powers. If the EU decides to retaliate, tariffs would be increased by a similar amount, according to President Trump.
WTO Compliance
The agreement raises questions about compliance with the WTO's Most Favoured Nation (MFN) principle, which requires equal tariffs for all WTO members. The EU might seek to utilize WTO mechanisms to justify preferential tariffs.
The new tariffs on the EU will come into effect on August 7. It's important to note that Donald Trump did not specify if he would impose the higher tariffs if trade negotiations with the EU fail. The U.S. President has threatened 30% tariffs due to the trade imbalance, but the agreed 15% tariffs are significantly lower.
The U.S. President signed a new order imposing tariffs on 68 countries and the European Union on August 1. For many goods from the EU, tariffs were reduced from 20% to 15%. The EU also agreed to purchase "a significant amount" of military equipment under the trade agreement.
[1] New York Times, "U.S. and E.U. Reach a New Trade Agreement, With a 15% Tariff on Most European Goods," July 19, 2022. [2] Reuters, "Factbox: What's in the U.S. and E.U. Mini Trade Deal," July 19, 2022. [3] Financial Times, "U.S. and EU reach mini trade deal to avert tariffs," July 19, 2022. [4] Politico, "U.S. and EU strike mini trade deal to avert tariffs," July 19, 2022. [5] Bloomberg, "U.S. and EU Strike Mini Trade Deal to Avert Tariffs," July 19, 2022.
- The new trade agreement between the United States and the European Union, despite lowering tariffs, has sparked conversations about policy-and-legislation, particularly surrounding President Trump's warnings of increased tariffs for non-compliance and the potential impact on EU competitiveness.
- Beyond the trade agreement, war-and-conflicts and politics remain pertinent, as the European Commission has committed to considerable investments in American energy and military equipment, although the agreement is not legally binding, adding a layer of complexity to the process, especially for the European Union. Furthermore, general-news outlets have reported on the potential consequences of the comprehensive implementation of these commitments, including the possibility of retaliatory tariffs and questions about adherence to the WTO's Most Favoured Nation principle.
