US and EU close in on 15% tariff deal

The EU and US are closing in on a trade deal that would impose 15 per cent tariffs on European imports, similar to the agreement Donald Trump struck with Japan this week.

Brussels could agree to the so-called reciprocal levies to avoid the US president’s threat to raise them to 30 per cent from August 1, three people familiar with the situation told the Financial Times.

“The Japan agreement made clear the terms of the shakedown,” said one EU diplomat. “Most member states are holding their noses and could take this deal.”

Both sides would waive tariffs on some products, including aircraft, spirits and medical devices, the people said.

The European Commission, which runs EU trade policy, briefed envoys from member states on Wednesday following talks with US counterparts.

News of the prospective deal boosted the euro, which recouped earlier losses to trade flat on the day against the dollar. US stocks extended gains, with the S&P 500 up 0.6 per cent.

The US has been charging an extra 10 per cent tariff on EU exports since April while talks between Washington and Brussels continued. That was on top of pre-existing duties averaging 4.8 per cent.

The people said they understood the 15 per cent minimum tariff would include those existing duties, so Brussels views a deal on those terms as cementing the status quo. Tariffs on cars, which are currently 27.5 per cent, would therefore fall to 15 per cent.

German Chancellor Friedrich Merz said he heard a deal to end the trade dispute between the US and the EU would be agreed imminently.

“We are hearing this very minute that there could be a decision” on trade, Merz said, as he welcomed French President Emmanuel Macron in Berlin for bilateral talks.

Trump imposed higher, sectoral tariffs on cars and car parts earlier this year using national security laws. EU officials have pushed hard for carve-outs to those tariffs for European carmakers.

Two of the people said the deal struck between the US and Japan had pushed Brussels towards grudging acceptance of a higher reciprocal tariff rate to avert a damaging trade war.

The EU could still retaliate if Trump tried to push further or followed through on his threat to raise reciprocal duties to 30 per cent from August.

Member states voted on Thursday in favour of a €93bn package of retaliatory tariffs, set at up to 30 per cent, in case they could not agree a deal by August 1. It would take effect on August 7. 

Only Hungary voted against according to two diplomats. 

They are also considering activating the anti-coercion instrument (ACI) — the so-called trade bazooka. Never before used, the ACI would give Brussels leeway to block US companies from public tenders, revoke intellectual property protection and restrict imports and exports. 

A US official said the situation was fluid and subject to change.

Additional reporting by Aime Williams in Washington, Tommy Stubbington in London and Anne-Sylvaine Chassany in Berlin

Letter in response to this report:
EU must defend its car safety standards / From Antonio Avenoso, Executive Director, European Transport Safety Council, Brussels, Belgium