Europe reacts with mix of relief and concern to US trade deal

Business Times

6 days ago

[BRUSSELS] European governments and companies reacted with both relief and concern on Monday (Jul 28) to the framework trade deal struck with US President Donald Trump, acknowledging what was seen as an unbalanced deal but one that avoided a deeper trade war.
The agreement, announced on Sunday between two economies that account for almost a third of global trade, will see the US impose a 15 per cent import tariff on most European Union (EU) goods – half the threatened rate but much more than what Europeans hoped for.
Many of the specifics of the deal were not immediately known, however.
'As we await full details of the new EU-US trade agreement, one thing is clear: this is a moment of relief but not of celebration,' Belgian Prime Minister Bart De Wever wrote in a post on X. 'Tariffs will increase in several areas and some key questions remain unresolved.'
Trump said the deal, including an investment pledge topping the US$550 billion deal signed with Japan last week, would expand ties between the trans-Atlantic powers after years of what he called unfair treatment of US exporters.
It will bring clarity for European makers of cars, planes and chemicals. But the EU had initially hoped for a zero-for-zero tariff deal. And the 15 per cent baseline tariff, while an improvement on the threatened rate of 30 per cent, compares with an average US import tariff rate of around 2.5 per cent last year before Trump's return to the White House.
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European Commission chief Von der Leyen, describing Trump as a tough negotiator, told reporters on Sunday that it was 'the best we could get'.
European stocks opened up on Monday, with the STOXX 600 at a four-month high and all other major bourses also in the green. Tech and healthcare stocks led the way.
'The 15 per cent rate is better than the market was fearing,' said Jefferies economist Mohit Kumar.
German Chancellor Friedrich Merz welcomed the deal, saying it averted a trade conflict that would have hit Germany's export-driven economy and its large auto sector hard.
French government ministers said on Monday that the deal had some merits – such as exemptions they hoped to see for some key French business sectors such as spirits – but was nevertheless not balanced.
Industry minister Marc Ferracci stressed more talks – potentially lasting weeks or months – would be needed before the deal could be formally concluded.
'This is not the end of the story,' he told RTL radio.
European companies, meanwhile, were left wondering whether to cheer or lament the accord.
'Those who expect a hurricane are grateful for a storm,' said Wolfgang Große Entrup, head of the German Chemical Industry Association VCI.
'Further escalation has been avoided. Nevertheless, the price is high for both sides. European exports are losing competitiveness. US customers are paying the tariffs,' he said.
Stellantis shares were up 3.5 per cent and car parts maker Valeo jumped 4.7 per cent while German pharma group Merck KGaA rose 2.9 per cent, in a sign of relief for those sectors.
Among the many questions that remain to be answered, however, is how the EU's promise to invest hundreds of billions of dollars in the US and steeply increase energy purchases can be turned into reality.
It was not immediately clear if specific pledges of increased investments were made or whether the details still must be hammered out.
And while the EU pledged to make US$750 billion in strategic purchases over the next three years, including oil, liquefied natural gas (LNG) and nuclear fuel, the US will struggle to produce enough to meet that demand.
While US LNG production capacity is due to almost double over the next four years it will still not be enough to ramp up supplies to Europe, and oil production is expected to be lower than previously forecast this year.
Despite the lingering unknowns, analysts stressed the deal still helped decrease uncertainty. Oil prices rose on Monday, as did the euro.
'Now that there is more clarity, you would think that not only in the United States, but around the globe, there will be a little bit more willingness to look at investment, to look at expansions, and to look at where the opportunities are,' said Rodrigo Catril, senior currency strategist at National Australia Bank. REUTERS