US–EU trade deal poses more risks for Europe

BRUSSELS

The US and the EU worked out a trade deal during the weekend, which may have resolved the long-standing uncertainties over tariffs on paper.

But the harsh and largely one-sided conditions the deal includes are expected to pose more risks for Europe.

President Donald Trump’s protectionist stance was a testament to things to come, as even during his election campaign, he made several statements about his dissatisfaction with the US’ trade surplus with EU countries, warning that he would impose tariffs. He placed tariffs on European cars and car parts at 25% and European steel and aluminum at 50%.

After an even higher tariff environment since Trump unveiled his sweeping reciprocal tariffs on April 2, US-EU relations suffered a great hit, endangering the world’s largest bilateral and investment relations with a total volume of more than $1.7 trillion.

The US and the EU reached a framework agreement, but the EU failed to secure a 10% baseline rate like the UK during negotiations, thereby being forced to back down. The potential failure to reach a deal would mean the US could impose 30% or more tariffs, rendering mutual trade impossible.

Trump announced that negotiations have been completed and the EU would face a 15% tariff after meeting with EU Commission President Ursula von der Leyen.

As a part of the deal, the EU agreed to buy $750 billion worth of energy products from the US while investing more than $600 billion in the country. At the same time, EU countries agreed not to impose tariffs on US products.

“In these turbulent times, this is necessary for our companies to be able to plan and invest,” said von der Leyen. “And with this deal, we are securing access to our largest export market.”

Von der Leyen stated that European carmakers would have faced 27.5% tariffs from the US had the deal not been reached.

The highly one-sided agreement involves the bloc’s commitment to paying 15% tariffs on cars and car parts, pharmaceuticals and semiconductors.

France and Hungary were the first countries to criticize the deal, deeming negotiations a failure, while German officials said it was appropriate to continue trade.

“A bad deal is (just about) better than no deal at all,” said UK-based Capital Economics in a recent report, noting that the new tariff deal will reduce the EU’s gross domestic product (GDP) 0.5%, above estimates.

The direct cost of the tariffs will cost around 0.5% of the EU’s GDP, according to a recent estimate by Deutsche Bank, while the $600 billion investment in the US could yield much higher costs for the bloc.

As a part of the deal, EU carmakers will face a 15% tariff similar to the US’ agreement with Japan, and in return, the EU will reduce its tariffs on US cars from 10% to none. The deal will result in European vehicles becoming more expensive in the US.

As European carmakers lag in transitioning to electric, now they will have to consider the price aspect of their already lacking competition against global competitors. US carmakers’ broadened access to the EU will greatly contribute to the challenges that EU car manufacturers will face.

Brussels-based European Automobile Manufacturers’ Association (ACEA) said in a recent statement that the tariff deal is a critical step toward easing uncertainties in trade, but its effect on the European car manufacturing sector will have to be assessed.

The German Association of the Automotive Industry (VDA) recently said that the deal was fundamentally positive but will cost the German auto industry billions every year, adding more burden on the sector during its transition to electric, while noting that the EU has to make it so that conditions in Europe can remain competitive at a global level.

⁠EU’s energy compromise

Energy was a key element of the deal reached, as the EU committed to purchase various energy products like oil, liquefied natural gas (LNG) and nuclear fuel -- all worth $250 billion per year for the next three years.

US oil and gas firms are expected to redirect shipments to European destinations, bringing in significant gains for those companies.

The EU’s energy imports reached €375.9 billion ($433.9 billion) in 2024.

The EU was the largest importer of US oil and LNG last year, receiving 16.1% of its oil and 45.3% of its LNG from the US -- those rates are expected to rise with the new deal.