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Preliminary Trade Deal Reached With E.U. After Months of Tense Talks

President Trump and Ursula von der Leyen, president of the European Commission, meeting in Turnberry, Scotland, on Sunday.Credit...Tierney L. Cross/The New York Times

President Trump and Ursula von der Leyen, president of the European Commission, meeting in Turnberry, Scotland, on Sunday.Credit...Tierney L. Cross/The New York Times

The deal sets a 15 percent tariff on European goods imported to the U.S.

The European Union and the United States agreed on Sunday to a broad-brush trade deal that sets a 15 percent tariff on most E.U. goods, including cars, averting what could have become a painful trade war with a bloc that is the United States’ single biggest source of imports.

President Trump said that the European Union had agreed to purchase $750 billion of American energy, which Ursula von der Leyen, the president of the E.U.’s executive branch, said would be spread out over three years.

The 27-nation bloc also agreed to increase its investment in the United States by more than $600 billion above current levels, Mr. Trump said, adding that the European Union would buy military equipment.

The two sides also agreed to drop tariffs to zero on a range of goods, including aircraft and plane parts, certain chemicals, semiconductor equipment and some agricultural products Ms. von der Leyen said.

Altogether, while it was clear that major details still needed to be hammered out, the framework seemed likely to permanently reshape the trading relationship between two of the world’s largest and most interconnected economies.

The agreement will “rebalance, but enable trade on both sides,” Ms. von der Leyen said as she sat next to Mr. Trump as the leaders made the announcement.

“We made it,” Mr. Trump said.

Not all higher tariffs were eliminated. The president implied that the 50 percent tariff he had imposed on steel and aluminum globally would remain as is, saying it’s a “worldwide thing that stays the way it is.” Other details of the agreement were not immediately available, and the White House did not immediately respond to a request for clarification.

And while Ms. von der Leyen said that the 15 percent tariffs would apply to pharmaceuticals, Europe’s most important export to the United States, she also suggested that Mr. Trump could still make further moves on pharmaceuticals globally, adding that “how to deal with pharmaceuticals in general, globally, that’s on a different sheet of paper.”

Though the agreement appears to be a preliminary one that leaves many questions to be resolved, it could bring a measure of calm to one of the world’s most important economic relationships and allay fears of an escalating trade war. The European Union last year accounted for nearly $610 billion of the $3.3 trillion in goods imported by the United States.

The 15 percent tariff rate given to Europe mirrors the main tariff rate of the U.S.-Japanese trade agreement that was announced last Tuesday, and is lower than the 19 and 20 percent rates imposed on several Southeast Asian countries. But it is higher than the 10 percent tax that Europeans had been angling for, and that Mr. Trump applied to British goods.

It’s also much higher than tariffs have been historically. According to the World Trade Organization, before Mr. Trump came into office, the trade-weighted tariff the United States charged on foreign goods was 2.2 percent, while the European Union’s was 2.7 percent.

“There’s a lot of issues that I think are still very unclear,” said Mujtaba Rahman, managing director for Europe at the Eurasia Group. “If there aren’t further exemptions to be negotiated to that 15 percent, I think it’s a far more suboptimal deal than the member states were hoping to achieve.”

The deal followed weeks of unpredictable talks. A month ago, the Europeans believed they were close to a deal, only to have Mr. Trump send them a letter on July 11 threatening a rate of 30 percent unless an agreement was reached by Aug. 1.

Even after that announcement, Ms. von Der Leyen had stressed the importance of continuing talks and trying to reach a negotiated deal. But the European Union also continued working to put the finishing touches on a plan to retaliate against Mr. Trump’s tariffs, one that could be enacted quickly if needed.

They finalized that raft of potential countermeasures last week. The goal was to create leverage. And, if talks broke down, some of the 27 E.U. member states thought that having a plan to hit back was essential.

Given that, by averting a retaliation, the new deal may avert the start of a tit-for-tat trade war that could have been economically damaging for both sides and that could have further soured the European Union and United States’ relationship — already strained this year by issues surrounding military spending, support for Ukraine, free speech and technology regulation.

“The European response on trade would have been fundamentally different had they not been worried about backlash in these other geopolitical theaters,” Mr. Rahman said.

Bringing down the tariff on European auto exports was a sticking point for the Europeans, especially Germany, the largest E.U. economy. Mr. Trump imposed a 25 percent tariff on foreign cars and car parts in April. European automakers, which sent cars worth 38.5 billion euros ($45 billion) to the United States last year, have been suffering under those hefty rates.

“The agreement successfully averted a trade conflict that would have hit the export-oriented German economy hard,” Friedrich Merz, Germany’s chancellor, said in a comment after the announcement.

Mr. Trump also lowered the tariff rate on Japanese auto exports to 15 percent as part of the deal announced last week. But those exemptions have raised immediate concern among auto manufacturers elsewhere, including in the United States, Mexico and South Korea, which are still paying higher tariffs.

Patrick Anderson, the chief executive of Anderson Economic Group, said the difference could lead to “a cost penalty of thousands a dollar per vehicle for numerous models assembled in the U.S.” that use foreign parts.

“How can the administration square a 15 percent tariff on cars from Europe and Japan, while manufacturers in the U.S., Canada and Mexico are laboring under 25 percent tariffs?” he asked.

Ms. von der Leyen acknowledged that the tariffs that will now prevail are much higher than the 2.5 percent that applied before the Trump administration came into office. But she also pointed out that the 15 percent rate that negotiators had managed to arrive at was much lower than what might have prevailed had no deal been reached.

“We should not forget where we came from,” Ms. von der Leyen said.

Source: N.Y Times

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