European leaders reacted with a mix of concern and relief following the announcement of a new trade deal between the United States and the European Union. Late on Sunday, negotiators hammered out the final agreement at Donald Trump’s golf course in Scotland. This is a severe move, as it creates a 15% tariff on almost all European exports to the U.S., automobiles among them, making the economic implications of this very scary for Europe.
The urgency surrounding the negotiations stemmed from President Trump’s threats to impose punitive 30% import duties on European goods if a deal was not reached by August 1. The conclusion of this final agreement does more than avert this trade escalation, it represents an important turning point in transatlantic trade relations.
François Bayrou, then France’s Prime Minister, let no doubt about his displeasure at the elected result. He referred to the day the deal was signed as a “dark day” for the European Union. As to the present state of affairs, he was clear about how serious this is, saying,
“It is a dark day when an alliance of free peoples, gathered to affirm their values and defend their interests, resolves to submission.” – François Bayrou
She stated,
“15% is not to be underestimated, but it is the best we could get.” – Ursula von der Leyen
Still, given these worries, it’s hard to believe that many leaders weren’t breathing a sigh of relief at the end of what they called “crippling uncertainty.” Berenberg pointed out that this deal represents a win for Trump. It’s introduced a measure of predictability into transatlantic economic relations.
In fact, European stock markets cheered this announcement. The German Dax index rocketed by 0.86%. At the same time, France’s Cac 40 index soared 1.1%, reaching a four-month top as trading began Monday.
Friedrich Merz, Chancellor of Germany, praised the agreement for avoiding what he called “needless escalation in transatlantic trade relations” and averting a potentially damaging trade war. He predicted that the agreement would have cascading effects on the German economy.
For Benjamin Haddad, France’s Minister for Europe, the deal offered “provisional stability” but was “imbalanced.” He stated that although it provides some new certainty, the terms are still quite too lopsided in favor of the U.S.
Irish Deputy Prime Minister Simon Harris expressed his delight at the deal for delivering “a level of certainty we badly need.” He did lament the EU’s retaliatory baseline tariff on U.S. goods.
Critics point out that the deal greatly favors the U.S. Specifically, they point out that tariffs on imports from Europe are much higher than the tariffs the European Union places on American goods. As per UniCredit’s analysis, this asymmetry has the potential of leaving permanent economic scars on European industries.
The pact has significant implications for the car industry, too. Hildegard Müller, President of the Car Industry Federation (VDA), welcomed the new framework deal. She described it as “fundamentally positive.” Still, she warned that there are “huge costs waiting to be incurred” as firms transition to new tariff regimes.
Berenberg had previously warned that any sharp decline in growth in Germany would “hit the bellwether economy hard”. Fortunately, some of the recent stimulus measures approved by the Bundestag will offset these impacts. The wider European reaction to this trade agreement is still tentative as European leaders look to balance short term reprieve and long term displacement.