By David Crowe
Frankfurt: The European Union has ended months of dispute with US President Donald Trump by accepting a deal that imposes 15 per cent tariffs on billions of dollars in exports, submitting to the terms out of concern he might otherwise punish Europe with higher penalties.
The outcome appears set to lift prices for American consumers and hurt sales for European exporters, in the latest example of global brinksmanship as Trump forces tariffs on major economies in the hope of raising huge sums of revenue for the US government.
EU Commission President Ursula von der Leyen meets US President Donald Trump at Trump Turnberry golf course in Scotland.Credit: Getty Images
In a surprise addition to the deal, the EU agreed to buy energy worth $US750 billion ($1.1 trillion) from the US over the years ahead – part of the bloc’s broader objective of reducing reliance on Russian gas.
Trump said the EU would also invest $US600 billion more in the US economy, echoing a vague investment pledge in a trade deal with Japan last week.
The deal was unveiled in Scotland on Sunday during Trump’s visit to his golf estates, as hundreds of protesters gathered to object to his visit, while supporters chanted his name outside some of his events.
“I think this is the biggest deal ever made,” Trump told reporters after he emerged from talks with European Commission President Ursula von der Leyen.
European industries were divided on the trade dispute over recent weeks, with German car makers anxious to gain a deal because of the threat to their sales from even higher tariffs, while French industry canvassed retaliation against US demands.
Von der Leyen confirmed the 15 per cent tariff applied “across the board” and framed the outcome as a win for stability.
“We have a trade deal between the two largest economies in the world, and it’s a big deal,” she said.
“It’s a huge deal. It will bring stability. It will bring predictability.”
Trump was threatening to impose a 30 per cent tariff unless the EU agreed to a deal before this Friday, prompting European leaders to prepare to retaliate with their own trade barriers on US products. That option was dropped, however, in the decision to accept the deal on Sunday.
While the 15 per cent tariff rate is better than Trump’s stated threat, it is a big increase from the average tariff rate of 4.5 per cent applied on EU products before Trump’s return as president in January. This leaves von der Leyen exposed to criticism that she has caved in to Trump.
In a sign of the pressure on European industry, Volkswagen revealed on Friday that US tariffs had cost the company €1.3 billion ($2.3 billion) in the first six months of the year. The company reported a 29 per cent fall in operating profit, missing analyst forecasts.
Europe also risks an economic hit from Trump’s pressure on US industry giants to invest more at home. Tech giant Intel has scrapped plans to build new silicon chip manufacturing plants in Poland and Germany.
American consumers will incur the tariffs by paying higher prices for European cars, wine, cheese, other farm products and manufactured goods, but Trump’s top advisers are counting on the policy to increase government revenue.
US Commerce Secretary Howard Lutnick told Fox News on Sunday in the US that the revenue could be worth $US1 trillion over a decade.
“What’s going to happen is very few products are actually going to move in price,” he said.
Economists have warned, however, that tariffs push up prices for customers because the impost is applied by governments on the products, leaving producers with few ways to cover the added cost.
The trade outcome has far-reaching implications for both economies when the goods trade between them was worth $US976 billion last year alone, according to data from the US Trade Representative.
A key feature of the trade relationship, and a source of aggravation for Trump, is that Europe sells more to the US than it buys. The US goods trade deficit with the EU was $US235.6 billion last year, up 12.9 per cent over the year.
The 15 per cent rate does not apply to steel and aluminium, which incur a 50 per tariff.
EU member states agreed last Thursday to hit back at the US if it went ahead with 30 per cent tariffs, setting up a spiralling trade war that would have hurt economies on both sides.
The retaliatory tariffs on US exports would have covered annual exports worth €93 billion and would have started from August 7 if Trump had proceeded with his threat. The outcome on Sunday averts that danger, even though the 15 per cent tariff is far above what many European leaders would otherwise accept.
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