EU's Trump tariff deal breakthrough
It was only Friday, soon after Trump's arrival in Scotland, that a meeting was confirmed for Sunday with European Commission President Ursula von der Leyen. While the two sides reported they were close to an agreement earlier this month, Trump declared on Friday that there were still more than a dozen sticking points .
On Sunday, Dr von der Leyen referred to the 'very difficult' negotiations. She said: 'We started far apart from each other... You saw the tension at the beginning... We didn't know if we would reach a landing zone or if it would crash. But in the end, as we were successful, it's good and satisfactory.'
The deal agreed on Sunday, while only a framework agreement, is therefore a breakthrough for both sides. Trump even called it the 'biggest of all deals', reflecting the fact that the EU and US trade around US$1.7 trillion per year, and constitute a combined market of around 800 million people and almost 44 per cent of global gross domestic product.
Under the framework, multiple core terms have been agreed. But key details still need to be sorted in the second half of the year in potentially extensive further technical talks.
Significant compromises have been made to get to this point. For the EU, the 15 per cent reciprocal tariff will see a big increase from the baseline of much of the last few decades.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
So the deal not only falls well short of the comprehensive liberalisation the European Commission and some previous US administrations have advocated, but it is also higher than the 10 per cent reciprocal tariff that the UK agreed with Trump. This, potentially, gives UK exports to the US a competitive advantage over the EU.
However, the 15 per cent reciprocal rate is the same as that of Japan. It is also less than the 19 per cent agreed by Indonesia and the Philippines with the US, and Vietnam's 20 per cent rate.
On top of the tariff rate, the EU has agreed to buy around US$750 billion of US energy over the next three years. This is expected to be largely liquefied natural gas (LNG), with some oil and nuclear fuels. Should the deal hold, this energy purchase will be divided over equal US$250 billion tranches. Following Russia's invasion of Ukraine in 2022, the US is already the EU's second-largest supplier of LNG.
The energy agenda could be a win-win for both sides. Reiterating the EU's desire to end its reliance on Russian fossil fuels, Dr von der Leyen said on Sunday: '(There is) too much Russian energy entering the EU through the back door... So it is very welcome to purchase more affordable and better energy from the United States.'
Yet, despite this positivity from the European Commission's president, the framework deal may be fragile. There is much more negotiation to be done on both the reciprocal and separate sectoral tariffs agenda before potential finalisation.
At the same time, American courts are continuing to look into whether Trump has the presidential authority to initiate across-the-board US reciprocal and sectoral tariffs under the pretext of a national emergency. This coming week, for instance, a US federal appeals court will hear arguments in a closely watched lawsuit on this issue.
On the upside for the EU, the deal secured zero-for-zero tariffs on a number of products, including all aircraft and component parts, certain chemicals, certain generics, semiconductor equipment, certain natural resources and critical raw materials. The goal is to keep adding more products to this list.
However, there are other examples where US sectoral tariffs could end up higher than 15 per cent.
Pharmaceuticals are one such instance, as Trump had previously threatened sectoral tariffs of up to 200 per cent. Dr von der Leyen said: 'It is agreed that we have 15 per cent for pharmaceuticals. Whatever the decisions later on is of the president of the United States: how to deal with pharmaceuticals in general? Globally, that's on a different sheet of paper.'
On Sunday, Trump told reporters: 'We have to have them built and made in the United States, and we want them made in the United States. Pharmaceuticals are very special. We can't be in a position where we're relying on other countries.'
Steel and aluminium also remain a key point of contention, as Trump intends to exempt them from the reciprocal deal and maintain 50 per cent tariffs. In contrast, Dr von der Leyen has stated that the goal is to return to 'historical quota levels, similar to what was agreed with the UK', which would 'help ring-fence our industries and address global overcapacity'.
So the framework agreement is far from perfect, despite the fact that a 15 per cent reciprocal tariff is lower than 30 per cent threatened by Trump. Dr von der Leyen acknowledged the 'challenge for some sectors', but argued it secures crucial access to the US market.
She also highlighted her broader trade diversification agenda, citing recently concluded negotiations with the Mercosur bloc, Mexico and Indonesia as part of a push to expand beyond the EU's 76 existing trade partnerships.
Nevertheless, for all the deal's flaws, it avoids – at least temporarily – worst-case scenarios between the EU and US, which could have potentially seen a trade war.
Since last November, Europe had been bracing for a tsunami of troubles from Trump. This January, Trump said: 'We have a US$350 billion deficit with the EU. They treat us very, very badly, so they're going to be in for tariffs.' As tensions mounted recently, the European Commission had prepared several lists of retaliatory measures against US products worth around 93 billion euros.
Moreover, the deal may now help expand cooperation outside of economics, including in consolidating Western support for Ukraine. This could be critical for the future of Kyiv as it faces another difficult period in the war with Moscow.
Taken together, the agreement will avert a trade war, but it remains fragile and much negotiation remains. If the agreement holds in coming years, it is another signal that the long era of expansion of international trade as a share of global GDP is probably now at an end, with Trump's disruptive tariff agenda reshaping the global political economy.
The writer is an associate at LSE IDEAS at London School of Economics
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Straits Times
22 minutes ago
- Straits Times
Missing Kenya football tickets blamed on govt protest fears
Sign up now: Get ST's newsletters delivered to your inbox Kenya President William Ruto's government has been accused of buying up tickets in the stadium to avoid hostile chants from protestors. NAIROBI – As Kenya prepares its biggest-ever football hosting job this weekend, locals are wondering why they can't buy tickets, with some accusing the government of filling the stadium with its supporters to avoid hostile chants. Kenya has seen multiple deadly protests for more than a year over economic stagnation and police brutality, leaving dozens dead or missing. It is hoping for a more positive vibe as it co-hosts the African Nations Championship (CHAN) with Tanzania and Uganda in August. But local fans are puzzled over the difficulty of securing tickets for Kenya's first match, against Democratic Republic of Congo, at Nairobi's 48,000-capacity Kasarani Stadium on Aug 3. Tickets have been sold out since July 28 evening – the result of a 'more than eager' fanbase, according to Nicholas Musonye, head of the local organising committee. Some die-hard supporters find that hard to believe. 'We haven't found any fan who managed to buy a ticket,' said a Kenyan sports journalist, who requested anonymity for fear of reprisals by the government due to the 'political' nature of the issue. Top stories Swipe. Select. Stay informed. Singapore 60 years of building Singapore World Trump deploys nuclear submarines in row with Russia World 'Optimistic' Bessent says US has makings of a deal with China Asia Not 'the end of the story'; some relief in Asia-Pacific over new Trump tariffs but concerns remain Singapore Man in SAF custody after allegedly vaping on bus while in army uniform Asia 'Like me? Approach me directly, okay?': Inside a matchmaking event for China's wealthy Opinion America is tearing down another great public institution Opinion Quiet zones in public spaces can help people recharge in the city He accuses the government of President William Ruto of buying up tickets in a bid to avoid chants like 'Ruto Must Go' that have become widely used since the protests began. He added that the government was likely handing tickets to people less likely to be critical. PropesaTV, an online media critical of Mr Ruto, told its 150,000 followers on X that the government had 'bought over half of the Kenya v Congo CHAN opening-match tickets in a bid to stop or avoid the chants'. It said tickets were being distributed to 'government supporters' who will be transported to the stadium by bus from Kibera, a huge Nairobi slum that has seen fewer protests against the president than other areas. A resident of the neighbourhood, also asking to remain anonymous, said he saw a 'massive' group of people hired by local officials to 'register' and collect personal data in exchange for tickets to the match. Kariuki Ngunjiri, a national youth leader for the president's party, said he had 'not seen the accusations'. 'Tickets are available online, we are encouraging a lot of people to come in large numbers on Sunday and enjoy the game,' he said, though tickets could not be found then or since by AFP. Kenyan Football Federation president Hussein Mohammed told AFP he was not responsible for ticketing, which falls under Confederation of African Football (CAF). CAF did not respond to a request for comment. Last week, Musonye of the organising committee told the Kenyan parliament that 'the current prevailing situation in the country, concerning the Gen Z protests, has been identified as a potential risk that can affect the safe delivery of the tournament'. AFP
Straits Times
an hour ago
- Straits Times
India reels from the shock of Trump's onslaught
NEW DELHI – President Donald Trump's new list of tariffs on half the world's countries sent the United States' trading partners scrambling to understand how their businesses will be affected. India got the bad news a day earlier – its goods face a tariff of 25 per cent or more – but the extra time was hardly enough to adjust to the fresh chaos. Indian negotiators had not expected to conclude a meaningful deal in time to meet Mr Trump's revised deadline of Aug 1. But they did expect to be treated as well as their neighbours, and to keep haggling with US officials until October or November, when Mr Trump was invited to visit India as part of the Quad defense group, which brings together four big democracies – India, the United States, Japan and Australia – with a shared interest in standing up to China. Instead, they were fed a heap of insults and injuries. Along with the 25 per cent rate, one of the highest in Asia and only a point lower than what was threatened on 'Liberation Day' in April, India was informed that its existing trade barriers are 'strenuous and obnoxious'; it will be charged an untold penalty for buying Russian oil; it is a 'dead economy.' It's archrival Pakistan was praised and promised an oil exploration deal. Hurt feelings aside, the results are confusing. Two of the biggest categories of exports to the United States from India are personal electronics, worth about US$14 billion a year, and pharmaceuticals, worth US$10 billion. Mr Rajesh Sharma, executive director of India Cellular and Electronics Association, said smartphones were exempted from these tariffs; so did executives at pharmaceutical companies. But on Aug 1, after reading the executive order, the Global Trade Research Initiative in New Delhi concluded the opposite. India's stock markets dipped on the news for two days running. Indian and international banks wrote notices warning that the country's generally hard-charging economic growth is likely to slow measurably as a result of the tariffs. Then there are the unknown tariffs. On July 6, Mr Trump wrote that countries aligned with the Brics group, of which India is a founding member, would incur an additional 10 per cent penalty. Then on July 14, he said that, if Russia didn't make peace with Ukraine within 50 days, he would punish its trading partners with 'secondary tariffs' of 100 per cent. That figure is making Indians worry anew. Mr Trump added 'plus a penalty' to the 25 per cent rate imposed on India, for buying Russian oil and weapons. Ms Shashi Tharoor, a prominent member of the opposition, spoke to an Indian news agency about the possible impact. 'There's even talk of a 100 per cent penalty,' he said, 'which will destroy our trade with America.' There is evidence that Indian buyers of Russian oil were already pulling back before the executive order. 'Indian refiners have reduced Russian crude purchases this week,' said Ms Sumit Ritolia, an analyst at Kpler, which tracks shipping and commodities. They were already 'looking to further diversify, amid rising concerns over potential US sanctions,' having spent years taking advantage of discounted Russian oil to reduce their imports from the Persian Gulf. Reducing the United States' trade deficit is one of the Trump administration's goals, so persuading India to buy more American oil and gas would make sense. Last year, India exported US$45.7 billion more goods to the United States than it imported. It spent about three times as much importing oil. If a third of that were redirected to American sources, their bilateral trade would be evened out. Mr Trump's angry barrage of social media has complicated further negotiations. The breakdown of trust between Mr Narendra Modi, India's prime minister, whom Mr Trump called his 'true friend,' the US president is likely to make it harder to complete any deal, analysts say. Indian news outlets have reported that Mr Trump wanted to iron out some outstanding issues, after four rounds of direct talks between the two sides, in a phone call with Mr Modi. The Indian government was anxious to avoid any of his last-minute surprises. The US commerce secretary accused India of 'slow-rolling' its trade negotiations. Indian officials and analysts say the friction is caused by a fundamental difference of approach. Mr Trump has a penchant for quick, top-down dealmaking. India's bureaucracy moves at a methodical pace, especially when it comes to opening up the agriculture market, which is politically sensitive. India's recently concluded trade deal with Britain took three years of talks, under two British prime ministers. On Aug 1, India's Foreign Ministry released a statement that put on a brave face. 'India and the United States share a Comprehensive Global Strategic Partnership,' established in 2013 between President Barack Obama and then-Prime Minister Manmohan Singh, 'anchored in shared interests, democratic values and robust people-to-people ties.' The ministry stuck to principles, revealing no plan for breaking through Mr Trump's hard line. 'This partnership has weathered several transitions and challenges,' the statement said. 'We remain focused on the substantive agenda that our two countries have committed to and are confident that the relationship will continue to move forward.' NYTIMES
Straits Times
an hour ago
- Straits Times
Trump administration Is freezing over $387 million for UCLA
Sign up now: Get ST's newsletters delivered to your inbox The Trump administration paused the research funding as part of an investigation by the government's antisemitism task force. WASHINGTON - The federal government is freezing over US$300 million (S$387 million) in research funds for UCLA over claims of antisemitism and bias at the institution, according to its chancellor and Trump administration documents. In a statement on July 30, the chancellor Julio Frenk said that the federal government was cutting 'hundreds of grants' to the university. Letters this week to UCLA from the Energy Department, National Science Foundation and National Institutes of Health accuse the university of adhering to 'illegal affirmative action' policies, failing to do enough to combat antisemitism on campus and discriminating against women by allowing the participation of transgender athletes. The Trump administration paused the research funding as part of an investigation by the government's antisemitism task force, two administration officials said. The freeze included about US$240 million in research grants from the Department of Health and Human Services and the NIH, US$81 million from the NSF and US$18.2 million from the Energy Department, a White House spokesperson said. The move makes UCLA the latest university to be targeted by Trump administration officials. It comes amid a broader pushback by the administration against what it sees as 'woke' ideologies. The NSF said in a statement that it was 'suspending awards to UCLA because they are not in alignment with current NSF priorities and/or programmatic goals.' The NIH did not immediately respond to a request for comment. In recent weeks, Columbia University, the University of Pennsylvania, Harvard, Brown and others have had federal funding reduced or threatened based on broad accusations from the Trump administration that range from antisemitism to improper support for diversity, equity and inclusion programs. In some cases, the government has used the threat of funding cuts to extract concessions and hundreds of millions of dollars from universities. Last year, UCLA was the site of one of the nation's biggest protests against the Israeli military offensive in the Gaza Strip. The demonstrations prompted claims from across the political spectrum that the university didn't do enough to protect Jewish students or pro-Palestinian demonstrators. On July 29, the university agreed to pay more than US$6 million to settle a lawsuit from Jewish students and a professor who said that the university had allowed a hostile protest on campus. After the settlement was announced, the Department of Justice separately said that it had found the university violated civil rights laws by failing to respond to students' complaints of antisemitism. Although the Trump administration intensified its attacks on UCLA this week, the school had been a target of the government's scrutiny for more than a year. In May 2024, Mr Frenk's predecessor, Gene D. Block, testified before a congressional committee examining campus antisemitism. And in February, a Trump administration task force on antisemitism identified UCLA as one of 10 schools it intended to visit as it investigated whether 'remedial action is warranted.' In recent weeks, UCLA would not say whether any of the task force's investigators had been to the campus. Mr Frenk said in his statement on July 30 that UCLA had taken 'concrete action' to address antisemitism and discrimination, including creating a new office of campus safety. 'This far-reaching penalty of defunding lifesaving research does nothing to address any alleged discrimination,' he wrote. He called the cuts a 'loss for Americans across the nation' whose work and health rely on the university's research. The funding cut is an early test for Mr Frenk, who became chancellor in January, as well as Mr James B. Milliken, who took over as the University of California system's leader on Aug 1. State and education leaders have been deeply concerned about the possibility that the Trump administration would target the university system as a whole, but especially the campuses in Los Angeles and Berkeley. Both schools were on the antisemitism task force's list for potential visits. But the Department of Education has also said it was investigating accusations of antisemitism at several other UC campuses. NYTIMES
