U.S. and EU release additional details to trade deal framework

Following a late July announcement in which the United States and the 27-nation bloc comprising the European Union, which collectively represents the largest trading partner for the U.S., announced they had come to terms on the framework of a large global trade deal, the parties said earlier today that they have agreed to additional details but are not yet at the finish line.

“This Framework Agreement represents a concrete demonstration of our commitment to fair, balanced, and mutually beneficial trade and investment,” said the U.S. and EU in a joint statement. “This Framework Agreement will put our trade and investment relationship—one of the largest in the world—on a solid footing and will reinvigorate our economies’ reindustrialization. It reflects acknowledgement by the European Union of the concerns of the United States and our joint determination to resolve our trade imbalances and unleash the full potential of our combined economic power. The United States and the European Union intend this Framework Agreement to be a first step in a process that can be further expanded over time to cover additional areas and continue to improve market access and increase their trade and investment relationship.”

Key takeaways from the updated framework include:

• the EU eliminating tariffs on all U.S. industrial goods while providing preferential access for various U.S. seafood and agricultural goods, including tree nuts, dairy products, fresh and processed fruits and vegetables, processed foods, planting seeds, soybean oil, and pork and bison meat, and expanded lobster provisions;
• the U.S. commits to apply the higher of either the U.S. Most Favored Nation (MFN) tariff rate of a tariff rate of 15%, comprised of the MFN tariff and a reciprocal tariff, on originating goods of the EU;
• effective September 1, the United States commits to apply only the MFN tariff to the following products of the European Union: unavailable natural resources (including cork), all aircraft and aircraft parts, generic pharmaceuticals and their ingredients and chemical precursors (the United States and the European Union agree to consider other sectors and products that are important for their economies and value chains for inclusion in the list of products for which only the MFN tariffs would apply);
• the U.S. commits that tariffs on EU pharmaceuticals, semiconductors, and lumber, under Section 232, will not exceed 15%;
• Section 232 auto duties will remain intact and will be capped at 15%, which is the combined MFN and Section 232, when the EU rolls out domestic legislation to reduce its tariffs, and will take effect at the beginning of the month in which the EU legislation is introduced;
• the EU plans to purchase $750 billion in U.S. energy products, including U.S. liquified natural gas, oil, and nuclear energy products, through 2028, and at least $40 billion in U.S. AI chips for its computing centers; and
• EU companies are expected to invest an additional $600 billion across strategic sectors in the U.S. through 2028, among others

When the initial trade framework between the U.S. and EU was issued in late July, Paul Bingham, Director, Transportation Consulting, for S&P Global Market Intelligence, explained that the 15% tariff rate will reduce the U.S. import tariffs on the EU countries to an effective average of 13.1% down from 13.5% currently (including 10% standard U.S. reciprocal import tariffs, 25% automotive import tariffs, and the 50% Section 232 tariffs on copper, steel, and aluminum imports. Should imports of European Union pharmaceuticals (currently subject to near-zero US tariffs) also be included in the 15% tariff coverage, he said that the effective US import tariff rate would rise to 17%. 

For President Trump to get the full set of trade deals that he mentioned on April 2, he first needed two major trade deals: one with the EU and one with China, said Dr. Walter Kemmsies, president of The Kemmsies Group, a provider of industrial and logistics real estate brokerage and consulting services, in a previous interview.

Kemmsies said that the vast majority of countries in the world depend to some extent on exports.

“Their major trading partners are the EU, the U.S., and China,” he said. “All these countries would [likely wanted] to wait to see how trade relations between the U.S. and China and the EU shake out first before they would want to make a deal with the U.S., for fear of upsetting the EU and China. While a small number of initial trade deals or outlines of a deal have been agreed to in principle with Japan, Indonesia, Philippines, Vietnam, and the UK, it was likely to be slow going until the big three economies settled up.”