Insights from European trade accord with Trump: What key lessons lie within?

The European Union (EU) and the United States have reached a trade agreement on July 27, 2023, following threats of 30% tariffs from the US. The agreement, signed by European Commission President Ursula von der Leyen and President Donald Trump, introduces a 15% tariff on most EU exports to the US, while offering duty-free access to US products in the EU single market.

The tariff rates imposed on the EU are comparable to those of Japan and significantly lower than those of most other countries. This agreement aims to avoid a trade war, but its stability appears precarious due to Trump's reputation for not keeping his word.

The EU, historically a champion of free trade, seems to have accepted tariffs as the new normal in trade relations with the US. The European Commission is advocating for a zero-tariff system on chemicals, aerospace, and semiconductors, and the lowest possible tariff on pharmaceuticals. However, a 15% tariff on most exported goods is part of the agreement.

The agreement largely satisfies Trump's demands, but some European analysts suggest that a tougher stance could have secured a better deal. As a result, the EU is considering a credible countermeasure to safeguard the positive aspects of the agreement and achieve more favorable conditions for the future.

The agreement will have various economic impacts. While it provides relief to a struggling automobile sector, with tariffs decreasing from the previous 27.5%, it is expected to harm European businesses and further weaken the already fragile growth of the European GDP. On the other hand, the highest price will likely be paid by US importers (and consumers).

The EU aims to deter the US from making unilateral demands on these categories and maintain a protected area of low transatlantic tariffs. Europeans are also considering measures to protect their industries, such as the potential use of safeguard measures to restrict imports if they cause or threaten to cause serious injury to domestic industries.

Ursula von der Leyen visited President Donald Trump at his resort in Scotland to accept the trade agreement. However, the name of the person who signed the agreement on behalf of the US remains unknown. Despite the challenges, the EU and the US are moving forward with this agreement, hoping to foster a more stable and balanced trade relationship.