Transatlantic Tariffs, American Optics

A “Deal,” But Not a Resolution: What the EU-US Trade Agreement Really Means

After months of mounting tensions, the United States and European Union announced a sweeping trade deal on July 27, 2025, narrowly avoiding a tariff war that threatened to upend nearly a third of global trade. The agreement, struck at President Trump’s Turnberry resort in Scotland, imposes a 15% baseline tariff on most EU exports to the U.S. — down from the 30% Trump had threatened in July, but still a substantial increase from the previous average of under 5%.

From a U.S. perspective, the deal aims to address its trade deficit with the EU, which hit a record ~$236 billion in 2024. American imports from the EU consistently outpaced exports, despite the integrated nature of transatlantic trade. Although the U.S. has long run a surplus in services, the imbalance in goods has been a sore spot for successive administrations.

Under the new agreement, nearly all EU exports will be subject to a flat 15% tariff, which replaces a patchwork of previous sectoral and MFN-based tariffs. For EU exporters, this new blanket rate brings clarity—but also financial strain. German automakers, Irish pharmaceutical firms, and Italian agricultural producers are among the most exposed sectors. Germany alone sends over €34 billion worth of vehicles to the U.S. annually.

Meanwhile, the U.S. retains its hefty 50% tariffs on steel and aluminum, though negotiators say those could eventually shift to a quota system. Sectors such as aircraft parts, certain chemicals, and some generic drugs will benefit from exemptions, returning to pre-2024 tariff levels. However, tariffs on alcohol and semiconductors remain unsettled, with further negotiations expected.

The chart above captures both the industry-specific impacts and the timeline of tariff changes. The auto industry sees a significant cut from a 27.5% pre-deal rate to 15%, while steel tariffs remain unchanged at 50%. More broadly, the U.S. raised tariffs from an initial 20% baseline to 30% in July before the final agreement halved them to 15%, a compromise described by von der Leyen as "the best we could get."

Despite Trump’s declaration that it’s “the biggest deal ever made,” the agreement is not legally binding and leaves several unresolved areas. Pharmaceutical and semiconductor tariffs are still under discussion. According to the European Commission, these sectors will continue at 0% for now, while the U.S. insists they fall under the 15% ceiling. This divergence reflects broader discrepancies: the U.S. states the EU “will” purchase $750 billion in energy products and invest $600 billion in U.S. industries, while EU officials say only that companies have “expressed interest.”

Many in Europe view the deal as lopsided. Irish officials worry about the pharmaceutical sector. German trade leaders call the tariffs a “burden.” Italians describe the agreement as “a surrender,” warning of GDP contractions. Some countries are even demanding compensation from Brussels.

Still, for the White House, the political optics are powerful. Trump frames the deal as a triumph of tough bargaining and a reassertion of American trade priorities. The agreement complements similar pacts recently struck with Japan and the UK, forming part of his broader “America First” trade architecture.

For the EU, the focus now shifts to ensuring that the political commitments are shaped into equitable legal frameworks. French President Macron and others have emphasized that this is merely a “first step” in a longer process. EU negotiators now face the challenge of securing exemptions, clarifying inconsistencies, and preventing further erosion of trade conditions under U.S. pressure.

Ultimately, this deal halts an immediate escalation—but it may well be just the calm before another storm in the complex, evolving EU-U.S. trade relationship.

Sources & References

BBC. (2025). EU-US tariff deal not finished yet, say Europeans unhappy with Trump's terms. https://www.bbc.com/news/articles/cvgp5q4x4nzo 

European Commission. (2025). EU-US trade deal explained. https://ec.europa.eu/commission/presscorner/detail/en/qanda_25_1930 

Reuters. (2025). US and EU avert trade war with 15% tariff deal. https://www.reuters.com/business/us-eu-avert-trade-war-with-15-tariff-deal-2025-07-28/ 

US Census Bureau. (2025). Trade in Goods with European Union. https://www.census.gov/foreign-trade/balance/c0003.html 

White House. (2025). The United States and European Union Reach Massive Trade Deal. https://www.whitehouse.gov/fact-sheets/2025/07/fact-sheet-the-united-states-and-european-union-reach-massive-trade-deal/