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US President Donald Trump and European Commission President Ursula von der Leyen announce an agreement on a trade deal, bringing 15% tariffs on most European goods exported to the US
The US and the EU seem to have sealed a principle agreement on a 15% tariff on almost all European exports to the US, except for steel, aluminum and pharmaceuticals.
There must be something magical about golf. On the weekend that Adam Sandler’s character ‘Happy Gilmore’ returned to the screens bringing some laughters into global living rooms, a golf course in Scotland brought relief for the global economy. U.S. President Donald Trump and European Commission President Ursula von der Leyen had their first high level meeting in the current trade negotiations between the US and the EU.
According to their statements after the meeting, there is an agreement on a 15% tariff deal on almost all European exports, except for steel, aluminum and pharmaceuticals. Also, according to US President Trump, the EU agreed to purchase 750bn US dollars in energy and would invest 600bn US dollars on top of existing investments.
Next (LON:NXT) to tariffs, there also seems to have been some convergence in official languages. While US President Trump called the deal “the biggest deal ever made”, EC President Von der Leyen said “it’s a big deal. It’s a huge deal”.
Worst-Case Scenario Avoided, but Only a Signed Deal Is A Deal
Today’s announcement comes after a recent increase in tensions with the US threatening with 50%, 30% tariffs and the EU publicly preparing retaliatory measures, in case there wasn’t a deal by the 1 August deadline. The 15% rate is lower than the 20% rate that Trump imposed, and later paused, on ‘Liberation Day’, as well as the 30% rate in Trump’s Letter to Von der Leyen.
The big caveat to today’s deal is that there is nothing on paper, yet. The next hours and days will hopefully bring more clarity. Therefore, any assessment has to be taken with more than only one pinch of salt. With this disclaimer in mind and at face value, today’s agreement would clearly bring an end to the uncertainty of recent months. An escalation of the US-EU trade tensions would have been a severe risk for the global economy.
This risk seems to have been avoided. For the EU, today’s agreement is probably almost as good as it could get. In recent days, the EU had proposed a 15% rate itself. Only the fact that steel, aluminum and pharmaceuticals will not be included shows that the EU still had to pour more water into the wine during the negotiations.
The more uncertain part of the agreement is the investment part. Judging from previous experiences but also acknowledging that the EC will be depending on national governments and businesses to actually increase investments, make this part shaky.
Looking ahead, at face value, today’s deal falls in line with our base case scenario of an effective tariff rate on European goods of close to 20%. However, we also know that a trade deal is only done and dusted when everyone has signed it. In the European context, this still means the European Parliament and all national parliaments.
More adverse scenarios seem to have been avoided, for now, and this is excellent news but whether everything will now be ‘big and huge’ still remains to be seen. Let’s not forget, particularly in trade, only a signed deal is a deal.
Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user’s means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more