The EU and US have agreed a trade deal that will hit most European imports with a 15 per cent tariff and require the bloc to invest hundreds of billions of euros into American energy products and weapons in order to stave off a trade war with the Trump administration.
The agreement means the EU has avoided the 30 per cent tariff rate threatened by President Donald Trump if a deal were not reached by August 1.
“I’m fully confident and 100 per cent sure that this deal is better than an all-out trade war,” EU trade commissioner Maroš Šefčovič said on Monday.
But it still results in US tariffs being at their highest level in decades.
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What will be covered by tariffs?
The 15 per cent tariff will cover about 70 per cent of EU exports, including pharmaceuticals and semiconductors, which had not been subject to levies before, though Trump had launched investigations into both sectors.
The 15 per cent rate also applies to cars, which had been subject to a 27.5 per cent tariff ahead of the deal.
This totals about €780bn worth of trade, said the European Commission.
US imports into the EU will not face higher tariffs in return.
Germany, which specifically pushed for low tariffs on cars and pharmaceuticals, welcomed the deal as “acceptable” under tough negotiating circumstances, said one official. German economy minister Katherina Reiche said the agreement was “challenging for our economy” but that it was “important that some sectors have been excluded”. “We have worked hard to achieve this,” she added.
In France — the EU’s biggest agricultural producer — reactions have been less appreciative as officials digest the impact of opening the market to more US agricultural products. Prime Minister François Bayrou described the accord as capitulation, saying it was a “dark day” for the bloc.
What will happen to steel and aluminium?
One of the biggest outstanding questions is over the EU’s exports of steel and other metals to the US. Trump said on Sunday that the US would maintain a 50 per cent tariff on steel and aluminium imports.
EU officials said on Monday that the two sides had agreed to a quota based on historic import levels, above which the 50 per cent rate would apply.
But US officials said that while a lower tariff quota was being discussed, nothing had yet been agreed.
“They tried to include steel, and the president said no, you know, he’s not willing to put steel into this deal. And they accepted that,” an official said.
“There are still a variety of things that they can add to the agreement over time,” they added.
Which sectors will have zero tariffs?
The two sides did, however, agree that they would both cut tariffs covering about €70bn of trade to zero. This included “all aircraft and component parts, certain chemicals, certain generics . . . certain agricultural products, natural resources, and critical raw materials”, said commission president Ursula von der Leyen.
The exact parameters of the zero-for-zero tariffs have yet to be determined. As of Monday, it was unclear whether wine and spirits would be included in the tariff-free part of the deal, with negotiations continuing.
A senior US official on Sunday evening said it “just didn’t make sense” for Washington to lower tariffs on EU wine and spirits “at this time” given the EU’s large surplus.
US officials said the EU had agreed to lower its tariffs on “all” industrial goods and “many” agricultural goods.
The zero-tariff preferential treatment for the US could run counter to World Trade Organization rules, trade experts have warned.
“All of these methods are clearly not WTO-compatible, but it would not be the first case,” said Ignacio García Bercero, a former EU trade official who led on WTO rules.
What has the EU promised to buy?
As part of the deal, the EU has pledged to buy $750bn worth of US energy products, including gas, oil and nuclear fuel, EU officials have said.
This would amount to $250bn per year for the rest of Trump’s term as president, von der Leyen said, marking a significant increase in US energy imports by the bloc.
In 2024, the EU imported €375.9bn worth of energy products from all over the world. Total US energy exports to the EU accounted for about €75bn last year, according to Eurostat.
The commission has also committed to investing $600bn into the US economy, as well as to undefined amounts of weapons purchases.
But the EU has no legal power to make these pledges, which is why they were “not legal commitments”, one EU official said.
“We can relate to the reindustrialising of the US economy as we pursue the same goal ourselves,” Šefčovič said.
A senior US official said the $600bn would come from “a list of companies” that had made commitments to the European Commission”.
How have markets reacted?
European stock markets were buoyant on Monday morning as they first absorbed the impact of the deal, but the optimism soon melted away as investors started to focus on the growth impact of the tariffs.
The Stoxx Europe 600 index closed 0.2 per cent lower and Germany’s Dax fell 1.1 per cent.
The euro posted its second-biggest single day decline of the year so far, falling 1.1 per cent against the dollar.
The reduction in trade uncertainty — which had been restraining the dollar in recent months — allowed the greenback to move higher. Adding to the move was the view that levies could push US inflation higher, requiring the Federal Reserve to keep interest rates elevated.
Technology stocks gained, as investors registered their relief that semiconductors would face zero tariffs. Chipmakers ASML and BE Semiconductor Industries both closed more than 3.5 per cent higher.
“The market is relieved because we are not getting a trade war,” said Gabriele Foà, portfolio manager at Algebris Investments.
But ultimately, “this is not good for European markets,” he added. “It means lower inflation and lower growth.”
What happens next?
The EU and US will issue a joint statement on August 1, which will outline the main elements of the deal. EU officials expect Trump to sign an executive order that will enact the 15 per cent tariff rate that day.
Brussels will then have to translate the joint statement into legally binding terms, which will require the backing of a majority of EU countries.
If the deal falls apart, which diplomats have said is unlikely, the EU could still retaliate.
Von der Leyen said she expected the deal to last for the remainder of the Trump presidency.
Šefčovič said on Monday that he hoped the deal would be a “step to a broader EU-US trade investment agreement in the future”.
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