Things just got a wee bit less volatile for all the CFOs who are stressed out about tariffs (so, pretty much, all the CFOs). The US and the EU have agreed to a provisional trade deal, easing fears that the two superpowers would enter a damaging trade war.
The US will levy a 15% tariff on most EU imports, including cars and pharmaceuticals, the New York Times reported. Certain items will face zero tariffs from either the US or EU, such as aircraft and plane parts, semiconductor equipment, and some chemicals, agricultural products, and generic drugs.
More categories of goods may be added to this “zero-for-zero” list in days to come as negotiations over the deal are finalized. The existing 50% tariffs on steel and aluminum imports will also still apply to EU exports of those materials, for now.
The EU has also agreed to buy $750 billion worth of energy from the US over the next three years, and increase its investment in US industries by $600 billion. It’s not yet clear how this part of the deal will work, as EU member states, and not the EU bloc as a whole, will be responsible for purchasing the energy and making the investments. The US will also have difficulty producing enough energy to meet that demand, Reuters noted.
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Like kissing your sister: President Donald Trump threatened the EU with 30% tariffs if it didn’t ink a trade deal with the US by August 1. EU leaders, on the other hand, hoped for 10% tariffs, like the US levied upon the UK in its trade deal. The 15% tariffs the parties landed upon are far higher than the 2.7% “trade-weighted tariff” the EU charged and the 2.2% the US levied prior to the second Trump administration.
The deal struck some observers as an unsatisfying but acceptable alternative to a trade war. EU Trade Commissioner Maros Sefcovic described the agreement as “clearly the best deal we could get under very difficult circumstances,” Reuters reported, while Wolfgang Große Entrup, head of the German Chemical Industry Association, remarked, “Those who expect a hurricane are grateful for a storm.”
Analysis predicts the new tariffs could bring the EU’s gross domestic product down by around 0.5%, according to the Wall Street Journal. Economist Joseph Brusuelas told the Journal the deal appears “broadly favorable to many US companies,” though he noted there will naturally be some downstream effects. EU automakers, for instance, may be prompted to shutter their US plants.