Trade negotiations result in accord between EU and U.S., preventing potential increase in import taxes
The European Union and the United States have reached a historic trade deal, marking a significant shift in transatlantic trade relations. The agreement, which still needs approval from all 27 member states of the EU, sets a new 15% tariff ceiling on most EU exports to the US.
The tariff ceiling applies to a wide range of goods, including cars and car parts, currently subject to reciprocal tariffs. The move is aimed at reducing trade barriers and fostering a more open and competitive market. However, it's important to note that some goods are exempt from the 15% tariff, such as certain agricultural and fishery products, machinery, some chemicals, fertilizers, cheese and other dairy products, pet food, as well as aircraft and plane parts, certain chemicals, and chip equipment.
In return, the EU has agreed to lower tariffs on these exempted goods. The deal also includes a provision for the US to maintain tariffs of about 50% on EU steel, aluminium, and copper, but both sides will establish "tariff rate quotas" that allow EU exports at historic levels. This move is expected to reduce the current 50% tariffs in a controlled manner, ensuring fair global competition.
The deal also includes a significant commitment from the EU to purchase an additional $750 billion in US energy products over the next three years. This is a major part of the agreement, aimed at strengthening energy ties and investment between the two economies.
In addition, the EU has pledged to invest $600 billion in various sectors within the US by 2029. This includes increased purchases of US military equipment to support NATO objectives and industrial cooperation. The US, in turn, has agreed not to raise tariffs on its exports to the EU under this deal, with the EU planning to reduce or maintain zero tariffs on many US exports, especially in sectors like farm products and raw materials.
The deal is designed to rebalance trade, which had a $235.6 billion US deficit with the EU in 2024. It also includes cooperative measures to address non-tariff barriers, digital trade, economic security, supply chain resilience, and rules of origin to prevent third-country free riding.
While politically significant, the tariffs are expected to raise costs and potentially distort trade. Estimates suggest a potential GDP decline for the EU ranging from 0.2% to 0.8%, with countries like Germany, Italy, and Ireland, and industries like automotive, machinery, and agriculture disproportionately affected. The extent of cost pass-through to US consumers will influence demand and price effects.
The tariff rate of 15% for automobiles and other goods between the US and EU is the same as the one announced with Japan earlier this week. The US President had previously threatened a 30% tariff on all goods from the EU on July 12, which has now been avoided through the trade deal.
In conclusion, the deal formalizes a 15% tariff ceiling on most EU exports to the US (excluding some products), includes significant EU commitments to purchase US energy and invest in the US economy, preserves some high US tariffs on metals with quotas, and aims to remove tariffs on certain US exports to the EU, all within a framework addressing broader trade barriers and economic security.
- The historic trade deal between the United States and the European Union sets a new 15% tariff ceiling on most EU exports to the US, covering a wide range of goods like cars and car parts.
- The deal also includes a provision for the US to maintain tariffs of about 50% on EU steel, aluminium, and copper, but both sides will establish tariff rate quotas that allow EU exports at historical levels.
- The EU has pledged to invest $600 billion in various sectors within the US by 2029, including increased purchases of US military equipment to support NATO objectives and industrial cooperation.
- While the tariffs are expected to raise costs and potentially distort trade, the deal also includes cooperative measures to address non-tariff barriers, digital trade, economic security, and supply chain resilience.
