U.S. and EU Avert Trade War with 15% Tariff Agreement

The Deal:

• U.S. and EU strike a framework trade agreement, capping tariffs at 15% on most EU goods.
  
• The deal averts a looming trade war, avoiding Trump’s earlier threat of 30% tariffs.
  
• It was finalized after a meeting between President Trump and EU Commission President Ursula von der Leyen in Scotland.
  

Key Provisions:

• EU to invest $600 billion in the U.S., with massive purchases of energy and military equipment.
  
• Tariff applies to most goods, including semiconductors and pharmaceuticals.
  
• Exemptions include:
  
  • Aircraft and aircraft parts
    
  • Certain chemicals
    
  • Generic drugs
    
  • Semiconductor equipment
    
  • Some agricultural goods and critical raw materials
    

Tariff Retentions & Conditions:

• 50% tariffs on steel and aluminum remain in place.
  
• The U.S. retains the right to raise tariffs if the EU fails to meet investment commitments.
  
• Spirits and other sectors are still under negotiation.
  

Reactions & Concerns:

• German Chancellor Friedrich Merz welcomed the deal, saying it protects export-heavy industries.
  
• EU Parliament officials criticized the deal as imbalanced and potentially harmful to the EU economy.
  
• Some leaders see it as a political, not comprehensive agreement, risking misinterpretation.

Market Impact:

• Euro rose 0.2% after the deal announcement.
  
• EU companies like Airbus, Mercedes-Benz, BMW, and Novo Nordisk could benefit if terms hold.

Key Quotes:

• Trump: “Biggest deal ever made,” calling it a victory for U.S. exporters.
  
• Von der Leyen: “It will bring stability and predictability… the best we could get.”

Broader Trade Context:

• Mirrors recent U.S. deals with Japan, Indonesia, and Vietnam.
  
• Part of Trump’s broader strategy to restructure global trade and reduce U.S. deficits.
  

The U.S. had a $235 billion trade deficit with the EU in 2024; the EU counters with U.S. services surplus.