Deal in the tariff dispute between the US and the EU: Trump wins

Brussels. In the pouring rain, Donald Trump played the final holes of his round at Turnberry, Scotland, his face hidden beneath his cap. Between shots, he waved to reporters from a white golf cart – while the world eagerly awaited another game: the showdown in the tariff dispute between the US and the EU. At around 4:30 p.m., Trump moved to the negotiating table at his luxury resort on the coast in southwest Scotland. There he sat with EU Commission President Ursula von der Leyen and her team to negotiate a tariff agreement. Then came the breakthrough.

"We have a deal," said von der Leyen after about an hour of intense negotiations. "It will bring stability and predictability, which is of great importance to businesses on both sides of the Atlantic." Trump added: "It's great that we have a deal instead of playing games. This is the biggest deal ever."

What began as a golf weekend ended with a multi-billion dollar trade deal. At the last minute, the US and the EU ended their months-long tariff dispute with a compromise that caps tariffs on imported EU products in the US at 15 percent, thus just barely averting an escalation. The new rate is three times the average tariff level of 4.8 percent before Trump took office. It is the same level as the recently concluded agreement with Japan and significantly higher than the 10 percent Trump agreed to with Great Britain.

Donald Trump before the decisive round of negotiations with the EU on a golf course in Scotland.

Source: IMAGO/UPI Photo

At the beginning of April, Trump threatened the EU with tariffs of 20 percent on all products, later even 30 percent. These were to take effect on August 1 if no agreement was reached. According to calculations by the Kiel Institute for the World Economy, exports from the EU would have plummeted by around 7 percent, and from Germany by as much as 9 percent. The EU member states had already prepared to impose 30 percent tariffs on selected goods. This is now off the table.

A 15 percent tariff will also be imposed on cars and car parts from the EU. Previously, Trump had imposed a special tariff of 25 percent on these. Reciprocal tariff exemptions will be introduced for aircraft, certain chemicals, and some agricultural products, among others.

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The new 15 percent tariffs are a compromise that the EU is only reluctantly accepting – because it's better than no agreement at all. For the European economy, however, this could mean a loss of up to 1 percent of gross domestic product. Export-heavy countries like Germany and the Netherlands are likely to feel the effects particularly hard.

In addition, the EU is committing to importing significantly more expensive liquefied natural gas (LNG) from the US than before and to making extensive investments in the US. Critics had already warned in advance that this would lead to a new dependence on US LNG. Around 50 percent of all EU liquefied natural gas imports already come from the United States.

Specifically, Europeans will spend the equivalent of €640 billion on energy in the US by the end of Trump's term. This will be complemented by additional investments of $600 billion (approximately €500 billion). Furthermore, the EU will keep its internal market open to US companies. Von der Leyen didn't provide any specific details. She only said: "European consumers will benefit from this." The US had previously presented a list of products it intends to increase its sales in Europe. These include goods that violate EU regulations, such as hormone-treated beef, and those for which there is hardly any market, such as pickup trucks. Trump nevertheless declared: "The deal brings us closer together. In that sense, it is also a partnership."

The member states were already aware at the beginning of the talks that the agreement would be unbalanced and clearly favor the United States. The agreement now marks the end of a tariff conflict that had been simmering for months and had brought transatlantic economic relations to the brink of a trade war.

EU trade policy expert Bernd Lange criticized the agreement as a "deal with a slant." The fact that the EU is setting all tariffs on US products at zero percent represents "a significant imbalance." He argued that the deal was not a masterpiece of negotiation. "Overall, this deal will contribute to weakening the economic development and impairing the gross domestic production of the European Union."

The German export industry sees the tariff surcharge as an existential threat for many traders. The agreement with the US will also cost growth, prosperity, and jobs in Germany, according to the Federal Association of Wholesale, Foreign Trade, and Services (BGA).

During the negotiations, it became clear that Trump was less concerned with fair trade rules than with generating additional revenue for the US budget through tariffs. He intends to use this to finance his expensive campaign promises, including massive tax cuts for US companies.

"We've raised hundreds of billions of dollars just from tariffs on steel and aluminum," Trump enthused as he appeared before the press with von der Leyen. "We've had a tremendous amount of money come in over the last month, and it's coming in very quickly." Trump had previously approved additional tariffs of 50 percent on imports of steel and aluminum products. According to the US President, these tariffs will remain unchanged at 50 percent regardless of the new deal.

Overall, the US expects revenue from tariffs on EU products to amount to more than 75 billion euros each year.