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The United States and the European Union have reached a preliminary agreement aimed at easing rising tariff tensions and boosting investment and trade between the two economic powers. The deal, announced by President Donald Trump and European Commission President Ursula von der Leyen, includes a tariff cap, substantial EU investment in the US, and efforts to reduce both tariff and non-tariff barriers.
Key details of the deal are as follows:
- Tariff rates: The agreement limits most EU imports to a 15% tariff rate, down from a threatened 30% increase by the US that was set to start August 1, 2025. However, the exact implementation dates and specific exemptions remain unclear, with ongoing negotiations about which products and sectors will benefit from tariff relief.
- EU investment in the US: The EU commits to investing $600 billion in the US over President Trump's term, adding to the existing $100 billion per year already invested by EU companies. This aims to support American jobs and deepen economic ties.
- US energy exports: The EU plans to purchase $750 billion worth of US energy exports through 2028, supporting America's energy sector while decreasing Europe's reliance on adversarial countries for energy.
- Reduction of tariff and non-tariff barriers: Both sides will work to eliminate tariffs in various sectors and tackle non-tariff barriers that hinder US exports to the EU. This includes simplification of regulations and “red tape” particularly affecting small and medium-sized American businesses. The EU emphasizes this deal provides a framework to further reduce tariffs, address these non-tariff barriers, and enhance cooperation on economic and security matters.
While the deal is a significant step to ease trade tensions, details remain incomplete and many complex issues are postponed, leading to criticism and uncertainty, especially on the exact timing and coverage of tariff exemptions.
Elsewhere, the euro saw a boost following the announcement, causing it to jump to US$1.1779 from its previous close of US$1.1749. European and US futures also saw an increase, and Hong Kong led the stock markets with a rise of around 1%, followed by Shanghai, Sydney, Seoul, Wellington, Taipei, and Jakarta. However, Tokyo experienced a second consecutive day of decline after a significant rise on Wednesday and Thursday due to Japan's US deal.
Investors are also keeping an eye on the Federal Reserve's latest policy meeting, expected to result in no change in interest rates. The S&P 500 and Nasdaq had a record-breaking day on Wall Street following the news of trade deals with China and the EU. Tech titans Amazon, Apple, Meta (Facebook), and Microsoft are expected to release their earnings soon.
The 90-day truce between the US and China, agreed upon in May, is set to expire on August 12. A delegation including US Treasury Secretary Steven Mnuchin will hold fresh trade talks with a Chinese team in Stockholm. The tariffs will apply across various sectors, including automobiles, pharmaceuticals, and semiconductors.
[1] BBC News. (2020, June 17). US-EU trade deal: What is agreed and what's still to be decided? Retrieved from https://www.bbc.com/news/business-52964935 [2] European Commission. (2020, June 17). Fact Sheet: EU-US Trade and Technology Council Joint Statement. Retrieved from https://ec.europa.eu/commission/presscorner/detail/en/IP_20_1672 [3] European Commission. (2020, June 17). Press Release: EU-US Trade and Technology Council. Retrieved from https://ec.europa.eu/commission/presscorner/detail/en/IP_20_1671
- The tech sector may experience growth with the $600 billion EU investment in the US, potentially providing opportunities for tech titans like Amazon, Apple, Meta (Facebook), and Microsoft.
- The joint statement from the EU-US Trade and Technology Council describes efforts to reduce both tariff and non-tariff barriers, which could positively impact the business environment and increase trade in the technology industry.
- Finance experts are monitoring the Federal Reserve's latest policy meeting, hoping to gain insights on any potential changes in interest rates that could, in turn, impact issues such as investing and business growth in the technology sector.
