This Week May See a 10% Tariff "Ceasefire" Agreement
As the August 1 deadline for the comprehensive US tariff increase approaches, the US and EU are accelerating negotiations to reach a "preliminary trade agreement" this week. This agreement would temporarily lock tariffs at the 10% level, providing space to work towards a permanent agreement. Previously, Trump announced that the general tariffs originally scheduled for July 9 would be delayed to August, offering a roughly three-week grace period for US-EU negotiations.
EU insiders revealed that the EU is striving to exempt some key products in the agreement, including aircraft and parts, wine, and spirits, to mitigate the impact on Europe's core industries. The European Commission has informed member states about the progress of negotiations and is coordinating to form a unified position in the final stages.
Intense Negotiations for Key Industry Exemptions
In pursuit of "reindustrialization," offsetting the fiscal gap caused by tax cuts, and limiting foreign advantages, the Trump administration announced high tariffs on global trading partners, including the EU. If an agreement isn't reached in time, tariffs on most EU exports to the US will rise to 50% starting in August, affecting a wide range of products.
To avoid severely impacting export industries, the EU is discussing with the US options for tariff reductions and quota arrangements, including cars, steel, and aluminum. Reportedly, the negotiations involve a "compensation mechanism" allowing European car manufacturers with plants in the US to secure partial duty-free export quotas, though some officials worry this could lead to investment and capacity shifts to the US, weakening the EU's manufacturing competitiveness.
Internal Differences Slowing Negotiation Pace
Currently, there is disagreement within the EU on whether to "quickly compromise for a temporary ceasefire" or "maintain a firm stance to secure more rights." Export-oriented countries like Germany and Italy favor swiftly reaching an agreement to safeguard export channels, while France, Spain, and some Nordic countries urge the EU to adopt a tougher stance, even implementing countermeasures if necessary.
The EU has approved imposing tariffs on €21 billion worth of US products in response and has drafted a new €95 billion tariff list covering core US industries such as Boeing aircraft, American cars, and bourbon whiskey. This is in preparation for potential "reciprocal tariffs" and targeted tariffs on sectors like automobiles and metals by the Trump administration in the future.
Strategic Sector Control Measures Considered
In addition to tariff measures, the EU is consulting with member states on whether to adopt trade countermeasures beyond tariffs, including export controls and procurement contract restrictions in US-sensitive strategic sectors, to enhance the EU's leverage at the negotiating table.
The focus of EU negotiations goes beyond immediate tariff impacts, emphasizing the long-term cooperation framework with the US in areas such as digital trade, economic security, and non-tariff barriers. Any soon-to-be-signed preliminary agreement may be brief and non-binding but could provide a negotiating buffer, avoiding the substantial tariffs set for August 1 that would lead to a lose-lose situation.
US-EU Economy Faces Tariff Shadows
According to data from Eurostat, the US-EU trade in goods and services is expected to reach €1.7 trillion by 2024, with daily transactions averaging €4.6 billion. Analysts point out that if tariffs are comprehensively increased, both sides will face multiple pressures such as rising supply chain costs, higher consumer prices, and declining corporate profits, potentially affecting economic growth forecasts for both the eurozone and the US.
A recent report by the European think tank Bruegel estimates that if the US imposes a tariff of 10%-25% on the EU, the EU's GDP could lose 0.3%, while the US GDP could drop by 0.7%, with the automotive, aviation, alcohol, and high-end manufacturing sectors being particularly affected.
