US, EU reach landmark 15% tariff deal, averting trade war

The US and the EU have reached an agreement to apply a 15% tariff on most of their exports, including automobiles, for now averting a trade war that could have dealt a severe blow to the global economy.

The deal was signed less than a week before the Friday deadline set by US President Donald Trump for higher tariffs to take effect.

Several European leaders, including German Chancellor Friedrich Merz and Italian Prime Minister Giorgia Meloni, praised the agreement, describing it as “sustainable.”

Trump and European Commission President Ursula von der Leyen announced the deal on Sunday at the Turnberry golf club in Scotland but did not disclose all its details or release any written documents.

According to a US official who spoke to Bloomberg, the 15% tariffs will take effect on August 1.

“This is the greatest of all deals,” Trump said, while von der Leyen added that the agreement would bring “stability” and “predictability.”

The agreement will result in the EU facing much higher tariffs than those it will apply to products imported from the US. Von der Leyen stated that the purpose of this is to balance the trade surplus with the US.

However, such concessions in the deal have angered some European industry groups. Germany’s main lobby group said it “sends a fatal signal to the closely intertwined economies on both sides of the Atlantic.”

Von der Leyen and Trump also have differing views on some key terms of the agreement they announced. The US president said the tariff level would apply to “automobiles and everything else,” but not to pharmaceuticals and metals.

The head of the EU executive body, in a later press conference, stated that the 15% rate would cover everything, would not be added on top of sector-specific tariffs, and would include pharmaceuticals, chips, and automobiles.

Von der Leyen noted that metal tariffs would be reduced and a quota system would be introduced.

“We have secured an agreement for a 15% rate on pharmaceuticals. Whatever decision the US president makes later on how to deal with pharmaceuticals in general is a separate issue,” von der Leyen said, adding that the overall rate “should not be underestimated, but it is the best we could get.”

Senior US officials later clarified that the two sides had agreed to apply a 15% tariff on the EU’s pharmaceutical exports.

The officials added that a separate Section 232 investigation concerning pharmaceuticals would proceed within the next three weeks, but the EU’s tariff rate would remain at 15%.

Trump said the EU has agreed to purchase $750 billion worth of American energy products, make an additional $600 billion in investments on top of current spending, open their markets to trade with the US at zero tariffs, and purchase a “large amount” of military equipment.

Von der Leyen added that Europe would replace Russian gas with an annual purchase of $250 billion in energy from the US for the remainder of Trump’s term.

The president also noted that a decision on European wines and spirits has not yet been made but that the issue would be resolved soon.

According to sources close to the matter, the key to applying the 15% rate to pharmaceuticals and semiconductors was the bloc’s promise to invest in the US.

Before the meeting, the EU expected the 15% tariff applied to its imports would also apply to most pharmaceuticals. These products were one of the main sticking points in the negotiations.

If an agreement had not been reached, the total average effective US tariff rate would have risen from 13.5% under current policies to 18% on August 1, according to Bloomberg estimates. With the new deal, this rate has been reduced to 16%.

The agreement does not cover the EU’s steel and aluminum exports, which will continue to be subject to a 50% tariff, according to senior US officials.

The officials added that tariffs on the aerospace sector would remain at 0% pending the outcome of the Section 232 investigation.

The officials had discussed terms for a quota system for steel and aluminum imports. Under this system, imports below a certain threshold would be subject to a lower import tax, while imports above this threshold would be subject to the normal 50% rate. The EU had also requested a cap on quotas and future sector-specific tariffs.

US Commerce Secretary Howard Lutnick told reporters that the outcome of the investigation into the semiconductor industry, which could lead to the imposition of new sectoral tariffs, is expected to be announced in about two weeks.

The transatlantic deal removes a major risk to the markets and the global economy: a trade war involving approximately $1.7 trillion in cross-border trade. But the final agreement also means that shipments from the EU to the US will be subject to a higher tax at the border.

Trump said the goals are to increase production in the US and to secure broader access for American exporters to the European market. Von der Leyen acknowledged that part of the driving force behind the negotiations was the rebalancing of trade, but she stated that it was beneficial for both sides.

“The starting point was an imbalance. We wanted to rebalance our trade, and we wanted to do it in a way that trade between two large economies would continue, because there should be a good flow of trade between two large economies,” said von der Leyen.

If the deal had failed and Trump had carried out his threat, the EU was prepared to impose tariffs on €100 billion ($117 billion) of US exports to the EU, which constitutes about one-third of the total.

For weeks, the EU had been demanding relief from tariffs on sectors critical to the European economy, indicating it was prepared to accept an unbalanced agreement that included a reduction of about 15%. The US president had also imposed a 25% tariff on automobiles and double that on steel, aluminum, and copper.

Not all EU members were pleased with the agreement reached on Sunday. France’s Deputy Minister for European Affairs, Benjamin Haddad, described the deal as “unbalanced” on social media and said the bloc should activate enforcement measures that would allow it to retaliate against US tech companies.

Dutch Minister for Foreign Trade Hanneke Boerma called the agreement “not ideal” and urged the commission to continue negotiations with the US.