How the EU's ‘lopsided' US trade deal was done

Irish Times

6 days ago

The European Commission's main man on trade,
Maros Sefcovic
, sat across from US commerce secretary
Howard Lutnick
in the Roosevelt Room of the White House in mid-February.
Earlier that week Lutnick, the man who would be charged with overseeing
Donald Trump'
s radical trade agenda, had been confirmed in the Senate.
Keen to avoid the economic turmoil of tariffs Trump had spoken often and fondly about on the campaign trail, Sefcovic made Lutnick an offer.
The EU and the US could both agree to drop pre-existing tariffs each charged the other on the trade of cars and other industrial goods. The proposal got no traction.
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Five months on and Sefcovic was again sitting across from Lutnick, this time in the ballroom of Trump's Turnberry golf resort in Scotland on Sunday, where commission president Ursula von der Leyen and Trump cut a deal on tariffs.
The agreement spares the world an imminent trade war between the European Union and the United States, but possibly only delays fights on some other fronts.
The EU agreed to accept import taxes of 15 per cent on practically all products sold to the US, as the price of avoiding even higher rates Trump had threatened to levy on transatlantic trade from August 1st.
The commission, the union's executive arm that negotiated the deal on behalf of the 27 EU states, secured commitments that steeper rates on cars would be brought down. Future US tariffs expected on pharmaceutical exports and semiconductors, would be capped at 15 per cent as well.
Several intensive summer weeks of talks at a more technical level involving officials, and between the two political interlocutors Lutnick and Sefcovic, had brought a possible landing zone for a deal into view.
However, a lot hung on what would happen when Trump and von der Leyen sat down together. The head of the commission agreed to fly to Scotland, where Trump was on a five-day visit that started at one of his golf courses.
Officials were hopeful, but it was not clear when the EU delegation walked into the room if they would come out with a deal. 'It was a real negotiating session,' a senior commission official said.
Trump's opening position at the start of the meeting was that the EU should suck up tariffs of 30 per cent, to do business with the US.
The EU team of von der Leyen, her trusted adviser Bjoern Seibert, two commission trade officials, and Sefcovic, had been prepared for Trump to open with a big number.
The US president dropped his tariff demand to 21 per cent, before settling on 15 per cent. That figure had largely been teed-up by EU and US officials in the days before the crunch meeting in Scotland.
'We stayed very firm on agriculture and other issues. There were a lot of moving parts, agriculture was not one of them, [or] food safety rules and our digital legislation,' the senior commission source said of those final talks.
The EU had been adamant since the start that changes to its rules barring US chlorine-washed chicken or hormone-treated beef from the European market were off-limits.
The EU also ruled out Trump's demands that the bloc pare back its strict regulations of the online sphere and scrap its system of charging value added tax (VAT) on goods.
European businesses have faced across-the-board tariffs of 10 per cent since Trump's 'liberation day' announcement on 2nd April. Backlash from the financial market in the days afterwards forced Trump to delay higher rates he wanted to charge on US trading partners.
The EU-US agreement is light on specific detail, but ends speculation about what final tariff rate EU states would end up paying.
Not everybody is happy. French prime minister François Bayrou, a long-time ally of centrist president Emmanuel Macron, labelled it a 'submission' by the EU.
A former EU trade commissioner who was in the Berlaymont during Trump's first term, Cecilia Malmström, said the union should have taken a tougher stance from the outset.
German chancellor Friedrich Merz and Italian prime minister Giorgia Meloni, two EU leaders who had actively been pushing for a quick, ugly deal over a perfect one, welcomed the agreement.
Speaking in Brussels on Monday, Sefcovic said the alternative would have been a damaging trade war between the two economic heavyweights.
Trump's threatened duties of 30 per cent would have made much of the trade that currently crosses the Atlantic to the US market unviable. Some five million jobs in Europe would be at 'great risk' in such a scenario, the commissioner said.
There were still some people that seemed to believe things could go back to how they were before Trump rolled out his sweeping tariff agenda, he said. 'It is quite obvious that the world which was there before the 2nd of April is gone, and we simply need to adjust,' Sefcovic said.
One key constituency likely on von der Leyen's mind throughout the negotiations has been the German automobile industry, who rely on big exports of BMW, Volkswagen and other cars to the US.
Cars were a politically contentious point of the talks. Trump has long complained that a lot more EU-made cars are sold in the US, than American vehicles are bought by Europeans.
On that front the EU side can point to something of a win. The agreement delivered by the commission president will cut the total US tariff rate on cars from 27.5 per cent, down to that blanket 15 per cent levy.
Imports of steel and aluminium, another sector Trump had targeted with specific tariffs, will continue to be subject to higher rates of 50 per cent.
However, a quota system that allows the EU to sell a certain amount of steel and aluminium products to the US at lower rates is being worked out.
The commission offered to do away with lower, pre-existing tariffs the EU charges on a range of products, as a further sweetener to Trump. That is expected to remove trade levies of between one and four per cent on US exports of nuts, processed and raw fish, cheese and some dairy, and pet food.
The EU also committed to buy hundreds of billions of euros of liquefied natural gas, oil and nuclear power from the US over the coming years, as Europe weans itself off energy supplied by Russia.
Bernd Lange, a centre-left German MEP who heads the European Parliament's trade committee, said the deal was 'lopsided' in favour of the US, with many concessions that were difficult to accept.
The EU did negotiate some relief from Trump's hefty 15 per cent tariffs. Aircraft and plane parts sold to the US will avoid tariffs, as will some generic pharmaceutical products and medical devices.
Negotiations are continuing to extend those tariff exemptions to the spirits and wine industry.
'We seem to be more advanced on spirits than on wines, but we are continuing the engagement,' a senior EU official involved in ongoing talks said.
Senior commission officials, von der Leyen, and Sefcovic are all adamant that the truce caps any future US tariffs on pharmaceuticals at 15 per cent.
As one of Europe's major exports to the US from Ireland and other countries, the fate of the industry in the talks had been a concern of several governments.
Trump himself had indicated pharma would not be part of the deal, when speaking to reporters minutes before the meeting with von der Leyen started. The president still plans to pressure pharmaceutical companies to shift manufacturing capacity, jobs and corporate tax revenue to the US.
A US trade probe (known as a Section 232 investigation) is due to conclude shortly, which will provide extra cover for Trump to hit the sector with tariffs for the first time.
Sefcovic said he believed the US administration would 'honour' its commitment that those coming import taxes would not be higher than 15 per cent.
A final judgment on the deal the EU has agreed with the US will probably hinge on whether Trump keeps his word on that or not.