Trump says he has a tariff deal with European Union, avoiding trade war

The deal, which would set 15pc tariffs on EU exports, would avoid a damaging dispute with the US’s largest trading partner and mark Donald Trump’s biggest trade deal so far.

European Commission president Ursula von der Leyen shakes hands with US President Donald Trump in Turnberry, Scotland. Picture: Getty Images

President Donald Trump said he reached a trade agreement on Sunday with the European Union, avoiding a damaging trade war with the US’s largest trading partner and marking his biggest deal so far in his attempt to remake the global trading system through higher tariffs for US trading partners.

Mr Trump said the US would set a baseline tariff of 15 per cent for European goods, including cars. He said steel and aluminium tariffs, which are currently at 50 per cent, would remain unchanged.

He also said the EU had agreed as part of the deal to buy $750bn worth of energy products from the US, and invest an additional $600bn in the US.

“I think it’s going to be great for both parties,” Mr Trump said, following face-to-face talks with European Commission president Ursula von der Leyen at Mr Trump’s golf resort in Turnberry, Scotland.

Mr Trump said the US would not be charged tariffs for US goods shipped to Europe. “We have the opening up of all of the European countries, which I think I could say were essentially closed,” he said.

A spokesman for the EU didn’t immediately respond to a request for comment on Mr Trump’s claim that the bloc would cut tariffs on US goods to zero. The EU currently applies an average standard tariff of 2.8 per cent on a trade-weighted basis, according to the World Trade Organisation.

“We made it,” Ms von der Leyen said. The two sides wanted to rebalance their trade relationship “in a way that trade goes on between the two of us across the Atlantic”, she said.

Currently, the EU faces a 10 per cent baseline tariff on most of the goods it exports to the US, as well as a 25 per cent tariff on its auto industry and a 50 per cent tariff for steel and aluminium. But Mr Trump had threatened to impose 30 per cent tariffs on the bloc if a deal wasn’t reached by August 1, a level that European officials have suggested could effectively shut down some trade flows.

Ms von der Leyen and Mr Trump shake on the trade deal. Picture: AP

The European deal is the most consequential agreement Mr Trump has so far announced. The EU is America’s biggest regional trading partner when the bloc’s 27 member states – which share a common trade policy – are considered together and its top source of foreign investment. The two sides exchange more than $US5bn worth of goods and services every day.

The terms disclosed on Sunday suggest that 15 per cent is likely a new minimum tariff level for most American trading partners. Economists and trade analysts say that tariffs at that level will have an impact on companies’ decisions and are expected to contribute to higher prices for Americans, but won’t stop global trade flows.

“They are not at the level where the global economy burns down,” said Dmitry Grozoubinski, senior trade adviser at Aurora Macro Strategies.

The deal comes after a flurry of recent trade announcements. Mr Trump said last week that he had reached a deal with Japan, another top US trading partner, which put baseline tariffs at 15 per cent. Separate agreements set Vietnam’s baseline tariff level at 20 per cent and established a 19 per cent rate for The Philippines and Indonesia, Mr Trump has said.

US ambassador to the UK Warren Stephens and US Commerce Secretary Howard Lutnick at Turnberry golf club in Scotland. Picture: Getty Images

Britain has the lowest tariffs Mr Trump has so far agreed to as part of a deal, at 10 per cent. Mr Trump was also expected to iron out final details of the UK agreement in meetings with British Prime Minister Keir Starmer on Monday.

The deal should not only ease anxieties that Mr Trump’s drive could lead to a broader trade war but also provide some clarity for business. Mr Grozoubinski said a lot of disruption for businesses had been because of the unpredictability of the Trump administration’s trade policies, and many companies would prefer a steady 15 per cent tariff compared with a lower rate that is less predictable.

The EU in recent days had finalised plans for retaliatory tariffs that could have been used to hit more than $100bn in US imports if trade talks broke down.

Some of the biggest outstanding talks are with Mexico, Canada and China, the second-largest economy in the world. US and Chinese officials are set to meet in Stockholm on Monday and Tuesday, where the two sides are expected to discuss extending their trade truce beyond its current August 12 expiration.

Staff and family look on as the trade deal is sealed in Turnberry. Picture: Getty Images

Both sides have pulled back on the highest tariffs they had applied to each others’ goods earlier this year, although US levies on China remain higher than they were before Mr Trump took office.

An EU deal with 15 per cent baseline tariffs is likely to be welcomed by financial markets because it would avert the risk of an escalating trade fight, Capital Economics economist Andrew Kenningham said recently. Tariffs at that level would lower the EU’s gross domestic product by about 0.3 per cent, he said, with Germany being hit harder, while France and Spain would be less affected.

Those tariffs would dampen German car exports, but are unlikely to be a “knockout blow to the sector”, Mr Kenningham said.

The Wall Street Journal