Thoughts

August 22, 2025 | 16:12

U.S. and EU Trade Deal: Still Needs Sign Off

Economist

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Finally! An official joint statement between the U.S. and the EU on their trade deal was released this week. You remember the deal: the one that was announced with great fanfare on July 28. One can imagine the stress that EC President Ursula von der Leyen and EU trade chief Maroš Šefčovič were under, particularly as President Trump in the prior week was giving the chances of a deal 50-50 odds. And, the EU’s letter from the U.S. had a 30% tariff listed, which was far higher than the 10% that Brussels had hoped for. (A 50% tariff was also threatened in May, if there was no deal by July 9.) Ursula von der Leyen assured European Parliament that “Europe must show strength” when the negotiations start; but, judging by the statement, one wonders where the strength was.

The framework for “reciprocal, fair and balanced trade” starts with a 15% U.S. tariff on most imports from the EU, which include future tariffs on pharmaceuticals, lumber, and semiconductors. In return, for starters, the EU will axe any tariffs it has on all U.S. industrial goods and give “preferential market access” to U.S. seafood and all sorts of agricultural goods, such as dairy and pork. Once the EU does that, then the 27.5% U.S. tariff on EU autos and auto parts will be reduced to 15%. Not before. And, the 25% tariff on European pickup trucks (aka the “chicken tax”) stays. Brussels also agreed to buy $40 bln of U.S. AI chips, $750 bln of U.S. energy products (such as LNG and oil) over a four-year span (to 2028), and lots more defence and military equipment. American standards will also play a large role in this agreement: Europe will “adopt and maintain” American tech security requirements to avoid any “technology leakage to destinations of concern”; and, both sides will be “streamlining requirements for sanitary certificates for pork and dairy products.”

How about steel & aluminum? Both sides agreed to “consider” protecting themselves from “overcapacity” and to keep an eye on their supply chains. But looks like the 50% tariff stays.

How about wine and spirits? No carve out, to the disappointment of those in France, Italy and Spain.

Failing to see the win-win here for a region that, collectively, is the largest customer of the U.S., accounting for about 20% of its total goods exports. So what’s next? Get comfy: this agreement needs to be passed by all 27 countries in the EU and, to give a blinding glimpse of the obvious, it won’t be an easy process. The agreement may also need to be passed by the European Parliament. In other words, although there is a lot more clarity now, this agreement, as it stands, may not be the end product. That likely holds for the other trade deals as well. Stay tuned.