"The reliability of Europeans upholding their causes is severely questioned"
The European Union (EU) and the United States have announced a landmark trade agreement, marking a significant shift in tariff levels and trade conditions. The deal, while not without controversy, aims to avoid a full-blown trade war.
Under the terms of the agreement, most EU goods exported to the US will face a 15% tariff rate, a considerable increase from the average of around 2% before the recent escalations. However, there are some notable exceptions and conditions.
For instance, steel and aluminium tariffs remain at 50%, not reduced by the deal. On the other hand, sectors such as aircraft and some unspecified goods maintain zero tariffs. Autos, semiconductors, and pharmaceuticals are subject to the 15% tariff, a shift from their previous lower or zero tariffs.
In the pharmaceutical sector, some generic drugs are excluded, but many pharmaceutical exports will face the 15% tariff pending completion of a US Department of Commerce Section 232 investigation. Semiconductor manufacturing equipment will remain tariff-free, protecting some technology supply chains.
The EU has agreed to purchase $750 billion of American energy during President Trump's tenure and commit to $600 billion in investments into the US, though this is largely dependent on private sector choices. The EU will also purchase an unspecified amount of US military equipment.
Importantly, the EU has agreed not to retaliate with tariffs or trade restrictions in response to the US tariffs, and may even reduce some EU tariffs. This decision has been met with concern by European leaders, who fear it could harm EU competitiveness and exports to the US.
The agreement has been criticized for its asymmetry, with the US imposing higher tariffs on EU goods while maintaining low or zero tariffs on US exports to the EU. The expected impacts include a surge in average tariffs on EU-U.S. imports from about 1.2% in 2024 to roughly 15-17.5% in 2025, potentially reducing EU GDP growth by around 0.2% to 1 percentage point in the near term.
The agreement is a political agreement on autonomous actions by each of the two partners. It does not apply to all EU exports to the US, as certain products remain subject to tariffs. The details of the agreement are not yet known, as they are dependent on the publication of a commonly agreed text.
The agreement's specifics are still to be specified, including the specific products within the agricultural sector, such as spirits, that are subject to tariff exemptions. Vehicles, which were subject to a 27.5% tariff since April, see a specific reduction under the agreement.
The tariff on certain sensitive products in the agricultural sector, including spirits, was already between 5% and 15% before the agreement. The agreement's validity and execution are not yet guaranteed. It's important to note that the agreement may not be a commercial agreement in the strict sense, and may not be subject to the validation and execution mechanisms of such agreements.
In summary, the EU-US trade agreement represents a compromise to avoid a full trade war, but brings a significant shift in tariff levels and trade conditions, especially for sectors like steel, aluminium, pharmaceuticals, autos, and semiconductors. The EU accepts higher tariffs without retaliation while agreeing to large-scale energy and investment deals with the US. Some finer points and future tariff adjustments—especially in pharmaceuticals—remain undecided.
- The EU-US trade agreement, despite controversies, is a significant shift in policy-and-legislation and politics, as it aims to avoid a full-blown trade war.
- The agreement, though not a commercial agreement in the strict sense, includes sectors such as agriculture, automobiles, semiconductors, and pharmaceuticals, each with specific tariff conditions and exceptions.
