United States and European Union come to terms on trade deal framework

With only a few days left until the end of the reciprocal tariff pause between the United States and its trading partners, the framework of a large trade deal was brokered yesterday between the U.S. and the 27-nation bloc comprising the European Union, which collectively represents the largest trading partner for the U.S.

“This colossal deal will enable U.S. farmers, ranchers, fishermen, and manufacturers to increase U.S. exports, expand business opportunities, and help reduce the goods trade deficit with the European Union,” said the White House. “The EU will remove significant tariffs, including the elimination of all EU tariffs on U.S. industrial goods exported to the EU, creating enormous opportunities for American-made and American-grown goods to compete and win in Europe. This new market access will drive growth across the American economy—fueling exports, expanding production, and allowing American businesses of all sizes to reach millions of new customers across the Atlantic.”

Under the terms of the deal outlined in a White House fact sheet, the EU will purchase $750 billion in U.S. energy and make $600 billion in new investments in the U.S. by 2028. And the EU will pay a 15% tariff on goods imported into the U.S., including autos and auto parts, pharmaceuticals, and semiconductors, while the sectoral tariffs on steel, aluminum, and copper will remain at 50%, with the White House noting that the U.S. and EU “will discuss securing supply chains for those products”—and that this “tariff regime” will generate tens of billions in revenue annually and help in closing the longstanding trade imbalance between the U.S. and EU, in various ways, through encouraging local sourcing, reshoring production, and ensuring foreign producers contribute their fair share to the American economy.

“This Framework demonstrates that America can maintain tariffs to reduce the goods trade deficit and simultaneously unlock market access for hardworking Americans whose interests remain firmly at the center of every deal made,” said United States Trade Representative Ambassador Jamieson Greer in a statement. “I thank European Trade Commissioner Maroš Šefčovič for his cooperation and commitment to pursue reciprocal, fair trade with the United States.”

Paul Bingham, Director, Transportation Consulting, for S&P Global Market Intelligence, explained that while many important details between the U.S. and EU remain unknown, overall, 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%. 

“That is compared with the threatened 30% tariff rate that had been scheduled by the US to take effect August 1, so [it is] a reduction in the potential impediments that U.S.-EU trade had been facing next month,” he said. “The 15% US import tariff rate echoes the recently announced US agreement with Japan, but is higher than the 10% US import tariff rate agreed to earlier with the United Kingdom.”

This deal is unlikely to lead to a significant revision of S&P Global Market Intelligence’s macroeconomic forecasts for the EU or the US, noted Bingham. And he explained that S&P Global Market Intelligence had already been assuming a 10% additional U.S. import tariff on top of pre-2025 US import tariff levels, which is broadly in line with current estimates for 2025.

“Reduced U.S. automotive import tariffs are a positive outcome for the EU from the new trade deal, impacting about a tenth of the EU’s total motor vehicles manufacturing (domestic production and imports for re-exporting) that is exported to the U.S.” he said. “The EU countries of Germany, Austria, Slovakia, Italy, and Sweden will benefit the most from these relatively lower automotive tariffs yet will still see declines in 2025 auto exports to the U.S. compared with 2024 levels as current US tariffs are meaningfully higher than pre-2025 duties those vehicles faced.”

Armada Corporate Intelligence Managing Director Keith Prather said that the 15% tariff rate seems to be where most of them are landing now, observing that most supply chains can absorb the 15% (by getting discounts up and down the supply chain, using currency exchange, etc.) to soften the blow from the tariffs. The big deal is still the steel, aluminum, and soon to be copper tariffs (Section 232's).

“Those are the factors that I am struggling with and should add some Producer Price Inflation,” he said. “There are also some specific pharma tariffs coming that could be a big deal. The spending that the EU has promised to do in the U.S. could be a big deal—and the defense sector spending is of course just one more ally promising to up defense sector spending by billions. There are a lot of promises in this particular trade deal and that could be interesting as we press forward—to see if they hold up their end of the purchasing promise. If not, the deal itself is pretty bland and may not move the needle much. Again, the 15% tariffs seem to be the new norm (the UK was the lowest at 10% while Vietnam came in at 20%, Indonesia at 19% and everyone else seems to be getting the 15% rate).”

Again, the promises for spending in the U.S. are very interesting. Just between Japan and the EU, it's over a trillion dollars in funds just headed to the US as investment. That doesn't include the tens of billions promised in purchases of U.S. goods. If they hold up those ends of the deals, it will mean more U.S. domestic freight movement and more export volumes—while perhaps not changing inbound volumes that much. Obviously, with more domestic sourcing, it should slow down total U.S. imports…but that's still to be seen. That transition will take time (2-5 years).”

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.

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 want 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.”

While there may be some more deals announced in the next few months, he said it is likely that the majority won't happen until Trump and Chinese President Xi meet up in October—noting that, however, laying out the outline of a trade deal with the EU is a very large and important step

“While there is a lot of talk about Japan and Europe investing US$ billions, this may not happen very fast,” said Kemmsies. “If not, the tariffs on U.S. importers imposed under these trade deals could push the U.S. closer to a recession. At this point there is too much uncertainty to make a reasonable estimate.”