Donald Trump’s world tour of arm-twisting on trade has landed its latest deal: A 15% baseline tariff on European Union goods, lowered from the recently threatened 30%, in return for an apparent smorgasbord of continental investments into the US and huge purchases of energy and military equipment. Japan sealed a similar deal last week while pushing back on some extravagant Trumpian claims. “It was the best we could get,” European Commission President Ursula von der Leyen said.
Many will agree with her. The US is the EU’s biggest trade partner and a dominant defense and technology supplier – a spiral of tit-for-tat tariffs is something Europeans simply can’t afford, as LVMH Moet Hennessy Louis Vuitton SE boss Bernard Arnault said last week. Sealing the deal before the Aug. 1 deadline at a level big companies say they find “manageable” is market positive, lifting the tariff fog and avoiding a worst-case scenario drag on euro zone gross domestic product of 1.2%, according to Barclays Plc. From German autos to French aerospace, transatlantic trade is looking a little less stuck.
Yet it’s hard to fully reconcile the we-dodged-a-bullet rhetoric with the reality that Europe’s 27-country single market faces a real hit. The combination of a 15% tariff rate and the euro’s 13% rise against the US dollar year-to-date represents a competitiveness double-whammy with little in return. The details are lacking and it’s unclear if this really is the end of hostilities. While US tariffs are expected to curb euro zone GDP by around 0.4%, that could rise to 0.7% if more surprises are to come, warns Bloomberg Economics.
Considering EU officials claimed to be ready in a worst-case scenario from possible retaliation against US tech firms like Amazon.com Inc. to teaming up with other vulnerable trade targets like Canada, it’s curious that so much has been given up for so little. Trump also claimed the EU is promising to buy $750 billion in US energy, invest $600 billion in the US and buy “vast” amounts of US weapons — a reminder of the continent’s dependence on American security that has only helped the Trump administration wring concessions on trade and tax. A few months ago, German Chancellor Friedrich Merz called for a more “independent” Europe; today, the Italian left calls this deal “unconditional surrender.”
