It is a trade deal that will “rebalance, but enable trade on both sides,” said Ursula von der Leyen after the EU and US struck a trade deal in Scotland.
It was not the most emphatic declaration by the president of the European Commission.
The trading partnership between two of the biggest markets in the world is in significantly worse shape than it was before Donald Trump was elected, but this deal is better than nothing.
As part of the agreement, European exports to the US will be hit with a 15% tariff. That’s better than the 30% the bloc was threatened with but it is a world away from the type of open and free trade European leaders would like. The EU had offered tariff free trade to the US just weeks before the deal was announced.
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Instead, it has accepted a 15% tariff and agreed to ramp up its energy purchases from the US.
The EU tariff on US imports will remain close to zero but Europe did get some important exemptions – on aviation, critical raw materials, some chemicals and some medical equipment. That being said, the bloc did not achieve a breakthrough on steel, aluminium or copper, which are still facing a 50% tariff. It means the average tariff on EU exports to the US will now rise from 1.2 % last year to 17%.
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There is also confusion over the status of pharmaceuticals- an important industry to Europe. Products like Ozempic, which is made in Denmark, have flooded into the US market in recent years and Donald Trump was threatening tariffs as high as 50% on the sector.
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It appears that pharmaceuticals will fall under the 15% bracket, even though President Trump contradicted official announcements by suggesting a deal had not yet been made on the industry. The risk is that the implementation of the deal could be beset with differences of interpretation, as has been the case with the Japan deal that Trump struck last week.
It also risks fracturing solidarity between EU states, all of which have different strategic industries that rely on the US to differing degrees. Germany’s BDI federation of industrial groups said: “Even a 15% tariff rate will have immense negative effects on export-oriented German industry.”
The VCI chemical trade association said rates were still “too high”. For German carmakers, including Mercedes and BMW, there was some reprieve from the crippling 27.5% tariff imposed by Trump. The industry is Europe’s top exporter to the US but the German trade body, the VDA, warned that a 15% rate would “cost the German automotive industry billions annually”.
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Meanwhile, François Bayrou, the French Prime Minister, described the agreement as a “dark day” for the union, “when an alliance of free peoples, gathered to affirm their values and defend their interests, resolves to submission.”
While the deal has divided the bloc, the greater certainty it delivers is not to be snubbed at.
Markets bounced on the news, even though the deal will ultimately harm economic growth.
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Analysts at Oxford Economics said: “We don’t plan material changes to our eurozone baseline forecast of 1.1% GDP growth this year and 0.8% in 2026 in response to the EU-US trade deal.
“While the effective tariff rate will end up at around 15%, a few percentage points higher than in our baseline, lower uncertainty and no EU retaliation are partial offsets.”
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However, economists at Capital Economics, said the economic outlook had now deteriorated, with growth in the bloc likely to drop by 0.2%. Germany and Ireland could be the hardest hit.
While the US appears to be the obvious winner in this negotiation, uncertainty still hangs over the US economy.
Trump has not achieved his goal of “90 deals in 90 days” and, in the end, American consumers could still bear the cost through higher prices.
That of course depends on how businesses share the burden of those higher costs, with the latest data suggesting that inflation is yet to rip through the US economy. While Europe determined on Sunday that a bad deal is better than no deal, some fear that the worst is yet to come for the Americans.
