This move follows his announcement of a framework agreement with Japan. That’s why experts and stakeholders are so buoyed by this new development. They argue that, if successful, it would pave the way for a nearly identical trade deal with the EU.
Specifically on U.S.-Japan Wednesday, that’s when Trump announced the specifics. Under this agreement, Japan has agreed to a baseline tariff rate of 15% on all covered goods, and substantially lowers the tariffs on American imports of Japanese automobiles from 25% to 15%. The President expressed confidence in upcoming discussions, stating, “We have Europe coming in tomorrow, and the next day, we have some other ones coming in.”
The positive sentiment surrounding the Japan deal has elevated expectations that the EU might also reach a favorable trade agreement. Deutsche Bank Research strategists and economists noted, “The Japan deal has significantly raised hopes that the EU might also be able to reach a trade deal.” Fights with European leaders are just around the corner. The stakes are particularly high because road vehicles are the EU’s largest single export to the U.S.
Trade economic experts are watching carefully to see how the details of the U.S.-Japan agreement will shape discussions with European officials. Katsuhiko Aiba, an economist at Citi, noted a significant development. He said Japan, a common global auto-exporting country, had its auto tariffs slashed with no limits on the number of autos they could export. More importantly, he implied that this could serve as a model for negotiations with the EU and South Korea.
All the while, Trump’s aggressive protectionist trade policies have driven a new wedge between the EU and China. The European Council is aware of ongoing developments related to EU-U.S. trade as European Commission President Ursula von der Leyen and European Council President Antonio Costa travel to Asia.
As for retaliation, the EU has already decided what U.S. exports will be targeted. The initial round of retaliatory tariffs, covering U.S. products valued at 21 billion euros, is still suspended until Aug. 6. But such levies — 30% on virtually all U.S.-bound EU imports — are set to go in place next month.
While these negotiations play out, the market reaction is striking. On Wednesday, the pan-European Stoxx 600 index was up about 1%, with automobile stocks jumping about 3.5%.