By Yiannos Stavrinidis
Just days before the August 1st deadline, the U.S. and the EU managed to strike a new trade deal, prompting sighs of relief, as the two traditional allies will not have to clash, at least for now.
The agreement stipulates that nearly all products headed from Europe to America will be subject to a base tariff of 15%. Among them are Germany’s prized automobiles, which, without the deal, would have faced a 27.5% levy. The automotive industry is vital to Europe, with 15% of its production exported to the U.S.
The 15% base tariff also covers semiconductors and pharmaceutical products. Yet, nothing is final, as 232 ongoing investigations into these categories could force President Trump to return seeking a revised deal. Aircraft and parts, certain chemicals, specific generic medicines, semiconductor equipment, select agricultural products, and critical raw materials will circulate tariff-free. More products are expected to join this list, while a much-anticipated provision regarding alcoholic beverages is still pending.
As for steel and aluminum, as seen in previous agreements, tariffs remain at the maximum 50%, though the EU’s chief negotiator believes this clause will eventually be replaced by a quota system.
To accept this otherwise ambiguous agreement, President Trump demanded and received EU commitments for $750 billion in investments in energy products and $600 billion in defense equipment. According to the announcement, these purchases must be completed before the end of Trump’s term.
Data show that the EU exports $300 billion worth of goods and imports $160 billion, recording a trade surplus with the U.S.
The deal is, without doubt, another negotiating win for President Trump, who manages to extract what he wants from traditional allies while retaining the right to make changes, leaving the EU at a disadvantage. In other words, the agreement can also be described as asymmetrical: what the EU secured is up in the air, while its obligations to the U.S. are concrete. As seen in the case of Japan, in the end, the deal will be interpreted as President Trump wishes. After all, it has already been stated that if the $1.35 trillion in purchases are not made, none of the agreed terms will hold. Essentially, the new “lower” tariffs are the highest in EU history. For while the 27.5% rates set to hit the auto industry this Friday were averted, and the current 10% rate was avoided, even at 15% corporate profits will take a hit.
Though nothing is yet on paper, the coming weeks will reveal much about the details of the agreement, clearing the fog of uncertainty. For now, European leaders remain composed, awaiting the final text. While this is no deal to celebrate, the worst has been avoided.
