The new trade agreement between the U.S. and the European Union will lift tariffs on imports of goods from EU countries to their highest level in decades and hurt the trading bloc’s economic growth, according to some experts.
“It is an asymmetric and unbalanced deal,” economists with investment bank Société Générale said in a report. The EU decided neither to retaliate nor to increase its tariffs, and is even expected to reduce them. The EU agreed to a bad deal rather than risk trade war escalation.”
The average tariff on U.S. imports from the EU will surge from 1.2% in 2024 to 17.5%, according to investor advisory firm Capital Economics. That will reduce the EU’s annual gross domestic product by 0.2%, the investment advisory firm forecast.
EU countries annually ship more than $300 billion in goods to the U.S., accounting for more than 20% of total U.S. imports. Mexico ranks second among America’s trade partners at roughly 15% of U.S. imports, while Canada accounts for 11% (see chart at bottom.)
The deal, announced Sunday by President Trump and European Commission President Ursula von der Leyen, imposes a 15% U.S. tariff on most EU imports, while American goods exported to the union’s 27 member countries will face no tariffs. Previously, U.S. exports to the EU faced an average tariff of roughly 1%, according to Goldman Sachs analysts.
The EU also pledged to buy $750 billion worth of energy from the U.S., up from about $80 billion a year, and to invest $600 billion by 2028.
The trade agreement will boost Americans by increasing access to the EU’s vast market and supporting the U.S. manufacturing sector, according to the Trump administration.
“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,” the White House said Monday in a fact sheet about the pact.
The White House didn’t immediately respond to a request for additional comment.
Reducing uncertainty
Although the agreement sharply raises U.S. tariffs, economists said the deal will also help ease some of the uncertainty around trade relations with a key trading partner. Perhaps most important, it is better than the alternative given that Mr. Trump had threatened to slap a 30% tariff on EU imports.
More broadly, the EU deal and the Trump administration’s framework agreement with Japan last week — both of which set 15% as a baseline tariff — also could help pave the way for trade agreements with Canada, Korea, Mexico and other countries, including on key sectors like autos, experts said.
“[C]ompared to expectations we had a few weeks before, in particular when pharmaceuticals and semiconductors could have been subject to higher tariffs, it looks like this deal is better than feared,” Michel Martinez, head Europe economist at Société Générale, told CBS MoneyWatch.
European auto exports would face a 15% levy, down from 25%, according to Goldman Sachs. Von der Leyen also said the U.S. would eliminate tariffs on some products, including aircraft and parts, semiconductor manufacturing gear, natural resources, some farm products, and certain chemicals and generic drugs. Likewise, the EU would abolish tariffs on those products.
Neither the U.S. nor the EU has released details of the pact, and lobbying by some industries is expected to continue. For example, Unione Italiana Vini, an Italian trade group representing winemakers, said in a statement on Monday that a 15% tariff on EU imports will result in a a $371 million hit for exporters.
“We are now calling on the Italian government and the EU to consider appropriate measures to safeguard a sector that has grown significantly thanks to U.S. buyers,” the group’s president, Lamberto Frescobaldi, said in a statement, while acknowledging that the deal “at least resolved the uncertainty that was stalling the market.”
According to the group’s analysis, a bottle of Italian wine that previously retailed for $11.50 in the U.S. will now cost nearly $15 under the new tariff agreement.
The German Association of the Automotive Industry (VDA), which represents German automakers, also said a 15% U.S. tariff on the country’s automotive products will hurt its car manufacturers, while noting that the new tariff rate amounts to a reprieve from the 25% automobile levies EU nations have faced since April.
Despite the Trump administration’s recent trade deals with the EU, Japan, U.K. and several other Asian countries, the U.S. still faces a self-imposed Aug. 1 deadline to reach agreements with Canada, Mexico, Korean other key trading partners.
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