Europe balks at ‘unbalanced’ U.S. trade deal

Published Mon, Jul 28 20252:59 AM EDTUpdated Mon, Jul 28 20255:58 AM EDT

Sophie Kiderlin @in/sophie-kiderlin-b327b914a/@SKiderlin

Key Points

The U.S. and European Union on Sunday announced a trade agreement, including 15% tariffs on EU goods imported to the U.S.
It comes just days ahead of the Aug. 1 deadline which would have seen EU goods be hit with a 30% tariff rate.
However there are concerns that the deal is "unbalanced" and leaves the EU on the backfoot.

European leaders and analysts are warning that the new U.S.-EU trade deal, while averting a tariff escalation, leaves the region at a disadvantage. The agreement — which imposes a 15% tariff on most EU goods heading to the U.S. — is being called "unbalanced," with critics arguing that it ultimately puts the region on the backfoot. The duties mark a climb down for the EU just days before a 30% tariff threat was set to kick in, however much negotiation is still set to take place. Some goods like aircraft components and certain chemicals are not set to be hit by tariffs, while autos will see duties reduced to the 15% rate. The agreement also includes provisions for the EU purchasing U.S. energy and increasing its investments in the country. "It's a climb down from a much worse place," Cailin Birch, global economist at The Economist Intelligence Unit, told CNBC's "Europe Early Edition" on Monday. However, she noted, "a 15% tariff is still a big escalation from where we were pre-Trump 2.0." Birch also pointed out that a lot of uncertainty remains, with details about the steel and pharmaceutical sector still being unclear. European leaders struck similar notes overnight, with German Chancellor Friedrich Merz saying that while the EU was able to protect its core interests, he would have welcomed further easing of transatlantic trade. France's minister for Europe, Benjamin Haddad, meanwhile said in a Google-translated social media post that while the deal would bring "temporary stability" to some sectors, it is "unbalanced" overall. An 'asymmetric' deal? Holger Schmieding, chief economist at Berenberg, warned that while the "crippling uncertainty" was over, the damage for Europe is more frontloaded in comparison to the long-term impact on the U.S. "The deal is asymmetric. The US gets away with a substantial increase in its tariffs on imports from the EU and has secured further EU concessions to boot. In his apparent zero-sum mentality, Trump can claim that as a "win" for him," he said. As it will take some time for U.S. consumers to feel the impact of tariffs, Trump's supporters may not immediately realize they are being hurt by the president's policies, Schmieding explained. This may encourage Trump to continue to pursue economic policies that are "bad" for the U.S., he added. The Economist Intelligence Unit's Birch meanwhile pointed out that the U.S. also did not get everything it may have wanted from the deal. "Both sides are, are kind of set back a bit from this deal," she said. "The U.S. didn't make any headway on a lot of issues that have in recent history been critical to their trade approach to the EU. So agricultural standards, the tech industry regulating standard that has been a big bugbear, there was no real mention of those standards whatsoever," Birch explained, acknowledging that the deal is not yet done. Ultimately both sides will be calling the deal a win, even if that is for different reasons, William Reinsch, senior adviser and Scholl Chair emeritus with the Economics Program at the Center for Strategic and International Studies, told CNBC on Sunday. "If anybody in Europe had said last March that they would agree to 15% tariffs, they would have been kicked out of the room. Now, they're going to call it a win, which it is, compared to the worst that could have happened," he said. Trump will characterize it as a win, as he has done with other trade frameworks, "because for him the squeeze is more important than the juice," Reinsch, who is also the Scholl Chair in International Business at CSIS, added. Trump needs to be seen as winning, regardless of what he is exactly achieving, he explained. Was a different outcome possible? Aurélien Colson, academic co-director of the ESSEC Institute for Geopolitics & Business, told CNBC on Monday that "the EU could have pushed for a better outcome, first and foremost by sticking to a strict policy of reciprocity." In response to Trump's tariff threats, the EU focused on negotiations and delayed its own countermeasures against the U.S. While the bloc was preparing for a no-deal scenario with a long list of potential levies and discussions of deploying its so-called 'trade bazooka,' it did not seek to further escalate the conflict with the U.S. Colson said Brussels fell into Trump's trap of combining an extreme tariff rate with a tight deadline. Instead, he argues the EU should have stressed how impactful its retaliation could be, and could also have formed a coalition with other key trading partners. "On this occasion the EU blinked first, with heavy concessions," he said. Power dynamics and complicated deal-making also put the EU in a tough sport, according to Jurgen Matthes, head of the international economic policy, financial and real estate markets research unit at IW Koeln, and Samina Sultan, senior economist for European economic policy and trade. "The deal at hand is ultimately still justifiable, because, in light of the balance of power, it was unrealistic for Trump to completely take back the present tariffs," they said according to a CNBC translation. The EU has the shorter lever because it is more economically reliant on the U.S. due to its trade surplus and export reliance, Matthes and Sultan said. "But above all, the EU could not risk an escalation of the trade conflict because we rely on the U.S. with regards to security policy. Trump likely would have pulled that ace out of his sleeve eventually," they said.