European leaders divided on EU-US trade deal

Initial reaction in Europe to the European Union’s trade deal with US is one of relief, mixed with exasperation and disappointment.

The dominant sentiment from politicians and market analysts on the announcement of an agreement, which followed a face-to-face meeting between European Commission President Ursula von der Leyen and Donald Trump in Scotland, appears to be that by accepting the imposition of 15% import tariffs on most of its goods – half the threatened rate of duty, the bloc of 27 member States have offset a full-blown trade war but gained little else.

15% Tariff to Apply to 70% of EU Exports

Von der Leyen has certainly talked up the deal, underlining that it would “bring stability” and “bring predictability that’s very important for our businesses on both sides of the Atlantic”.

Sources close to the agreement revealed that the 15% tariff on EU exports would apply to 70% of goods sold to the US.

The EU and the U.S. will completely abandon duties on each other’s aircraft, semiconductor equipment, critical raw materials, and “certain” chemicals, generics, and agricultural products, Von der Leyen revealed, noting that Brussels would “keep working to add more products to this list”.

Of the sectors still on the negotiating table, arguably the most notable is wines and spirits, with talks reportedly more advanced on spirits than wine.

The president of Brussels-based lobby group, Business Europe, said he hoped that a solution would be found soon for important sectors that appear to be excluded from the deal.

According to EU officials, exports of pharmaceuticals from the EU will remain duty free until such time as Trump completes his section 232 national security investigation into the sector.

Even if this investigation does lead to the imposition of tariffs on pharmaceuticals in the future, a top level of 15% will be set when it comes to EU products.

‘Positive Spin’

At a press briefing at midday (CET) today (Monday)the EU’s commissioner for Trade, Maroš Šefčovič’s said the EU-US deal “brings renewed stability and opens door to strategic collaboration.”

He added: “Consider an alternative. A trade war may seem appealing to some, but it comes with serious consequences. With at least a 30% tariff, our transatlantic trade would effectively come to a halt, putting close to five million of jobs, including those in SMEs in Europe, at grave risk.”

He went on to underline that businesses wanted to “avoid escalation and work towards a solution that delivers immediate relief.”

Meanwhile, in Germany, the spokesperson on economic policy for the ruling CDU/CSU party, Andreas Lenz, said the deal was a “painful compromise”, which harmed both economy and consumers.

However, Chancellor Friedrich Merz attempted to put a positive spin on the deal in focusing on US tariffs on EU-made automobiles, a lucrative export market for German vehicles, which will be reduced from 27.5% to 15%.

Italy’s PM Georgia Meloni also sounded an upbeat tone, saying that “potentially devastating” consequences had been avoided, although she did add that Rome would have to “study the details” of the deal.

‘Unbalanced’ and ‘Unsatisfactory’

Of the EU’s heavyweights, France has been the most critical of the trade deal. In a post on X, prime minister François Bayrou, remarked: “It is a dark day when an alliance of free peoples, united to assert their values and defend their interests, resigns itself to submission.”

For his part, Benjamin Haddad, France’s Europe minister, said that while the deal will “bring temporary stability, it was generally “unbalanced” and called the situation “unsatisfactory”.

In an interview on the France Inter radio station, French Trade minister Laurent Saint-Martin said that settling for the trade deal announced on Sunday was tantamount to be accepting that Europe was not an economic power.

Other French politicians have called on the European Commission to renew its threat of retaliation in order to broker a more equitable deal.

GDP Contraction in EU Countries

An Italian think tank, the Institute for International Political Studies (IPSI), noted that after months of tension, the US and the European Union have reached an agreement that provides for Washington to introduce a so-called “reciprocal tariff” of 15% on European goods.

“In reality, the tariff is hardly reciprocal: the EU, which applied an average tariff of 0.9% on American goods, has decided not to react for now, leaving both counter-tariffs on €93 billion worth of US goods and measures on services offered by US companies in Europe on hold.

“The tariffs penalize European countries with strong trade exposure to the United States, such as Germany and Italy. German GDP could contract by 0.3%, Italian GDP by 0.2%, while the impact on France would be more limited, at around 0.1%.”

In a note to clients, Holger Schmieding, chief economist at German bank Berenberg described the deal as “asymmetric” and claimed the US was getting away with a substantial increase in its tariffs on imports from the EU while securing further EU concessions to boot. This is a reference to $600 billion of EU investments in the US and significant EU purchases of U.S. energy and military equipment.

German Automaker’s ‘Win-Win’ Proposal

Meanwhile, ahead of the trade deal being reached, German auto-making giant Volkswagen has proposed a 'win-win' model to the US authorities where customs duties would be offset by the company’s investments in the US.

“Our offer to the US government consists [of]..., figuratively speaking, of reducing the cost of customs duties by one dollar for every dollar invested,” said VW CEO Oliver Blume, at a press briefing.

“We hope that it will be a balanced agreement ...and that we will then be able to conclude a specific agreement for the Volkswagen Group that will apply to all the Group's brands,” Blume, referring to a ‘win-win’ deal.

This would enable Volkswagen to continue its growth in the US States, its second-largest export market after China.

“We have the potential to contribute more than $10 billion. And of course, this depends heavily on the opportunities that arise,” he added.

“This is a Volkswagen model, but I think it should be open to other European companies,” he remarked, making it clear that he was not only referring to the automotive sector but also other sectors such as pharmaceuticals.