EU-US Trade Agreement: Is It a Grand Deception or a Rational Decision?
The US-EU trade deal, announced on July 27, 2025, has brought a sense of relief to some sectors in Europe, with a 15% tariff on most EU exports to the US, lower than the previously threatened 30%. However, the deal has raised concerns and controversies that may have long-term implications for Europe.
The deal, while better than feared, is perceived by many European leaders as a demonstration of the US as an unreliable partner. The tariff, though lower, is seen as a step back from the closer partnership that was once hoped for. This perception has incentivized the EU to diversify its economic relations, pursuing deals with countries such as Indonesia, Mexico, Mercosur nations, and India.
The impact on overall EU GDP growth is minimal, with sector-specific effects mainly on automotive, chemicals, metals, and parts of pharma. Auto companies and the pharmaceutical industry, in particular, are not displeased with the 15% tariff. However, the deal may lead to a drift away from US brands by government and consumers in other regions, potentially causing long-term damage to US-EU trade relations.
The deal also includes commitments from European companies to invest USD 600 billion in the US, a commitment to purchase microchips, and a commitment from the EU to buy USD 750 billion in energy from the US over the Trump presidency. The implementation of these commitments remains unclear and open to manipulation.
The deal has emptied all goodwill from the trans-Atlantic relationship and is another diplomatic rupture by President Trump. Politically, the EU is presenting the US-EU trade deal as the best possible outcome in a difficult geopolitical climate. However, the deal may further damage trans-Atlantic relations and lower the level of trust between the EU and the US, with strategic implications as far as Russia/Ukraine and the Middle East.
Regarding financial markets, the limited negative impact on private markets investors is expected due to the bulk of European economic activity being in the service sector, which US import tariffs do not affect directly. The tariff-related trade friction contributes to an elevated overall US tariff rate and has led to higher consumer prices, particularly for goods like clothing and textiles, while impacting EU exports selectively.
The deal also includes a resistance from the EU to water down its digital regulations in the US-EU trade deal. This stance is seen as a positive step towards maintaining European digital sovereignty.
Despite the deal, there is still despair among professional trade staff about the non-binding nature and potential for future tariffs in the US-EU trade deal. Tariff levels for wines and spirits, steel, and pharmaceuticals have yet to be finalized, adding to the uncertainty.
In summary, the US-EU trade deal reduces immediate uncertainties and growth risks but deepens Europe’s economic caution towards the US, encourages diversification of trade partners, and has a contained but sector-specific economic impact on European trade and financial markets. The deal may lead to a drift away from US brands, further damage trans-Atlantic relations, and lower the level of trust between the EU and the US, with strategic implications as far as Russia/Ukraine and the Middle East.
Von der Leyen and other European leaders view the US-EU trade deal as a demonstration of the US as an unreliable partner, particularly in relation to industry and politics. The tariff, though lower than initially expected, has incentivized the EU to pursue deals with other countries in the industry sector to minimize future economic dependencies on the US.
The US-EU trade deal has raised concerns within finance markets, as the implementation of certain commitments remains unclear and open to manipulation, potentially causing financial instability in the long term. The deal may also lead to a drift away from US brands in the finance sector, further damaging the US-EU trade relationship.
