Transatlantic tariff tensions persist as EU US trade deal brings mixed results

The European Union’s newly forged trade agreement with the United States has been met with reserved optimism by industry leaders across the continent. The deal introduces a flat 15 per cent tariff on most European exports to America, down from the previously threatened rate of 30 per cent, staving off the immediate prospect of a damaging trade war. Business groups remain wary, however, with many describing the tariff as punishingly high and warning it could have deep repercussions for industries already struggling with rising costs and global competition.

Wolfgang Grosse Entrup, chief executive of the German Chemical Industry Association, reflected on the prevailing sentiment among exporters, noting that expectations of an economic hurricane had given way only to a severe storm. Bertram Kawlath, President of the VDMA which represents engineering companies across Europe, described the 15 per cent tariff as regrettable but acknowledged the deal provides a much-needed pause in escalating transatlantic tensions. He urged both parties not to accept current tariff levels as the new norm, but rather to pursue further reductions and eliminate barriers that risk undermining prosperity and innovation.

The agreement requires Europe to commit $600 billion in investments in the United States, including the defence sector, and to allocate $750 billion to US energy exports. While some sectors were shielded from the full force of the new tariff regime, many have not fared as well. German automotive manufacturers, for instance, are among the most heavily affected, with the German Association of the Automotive Industry forecasting annual costs running into billions. These tariffs come at a critical time, as the car industry is already navigating the expensive shift towards electric vehicles and integrated North American supply chains.

Volkswagen reported a €1.3 billion loss attributable to US tariffs in the first half of the year, nonetheless acknowledging that the deal adds a layer of planning security and predictability. Stellantis, parent to marques such as Fiat and Peugeot, saw shares slide by nearly 5 per cent in New York trading. Exemptions were carved out for semiconductor equipment, a handful of pharmaceutical and farm products, as well as aircraft and aircraft parts, resulting in a rally for leading European companies in those fields, including BE Semiconductor Industries and ASM International.

Nonetheless, some industries remain in limbo. Exemptions for European spirits were notably absent from the agreement, prompting calls for urgent clarification by Ursula von der Leyen, President of the European Commission. The spirits industry is heavily exposed to the American market, with Rémy Cointreau and Pernod Ricard stocks reflecting the uncertainty. In contrast, a lack of EU retaliation has provided relief for US whisky producers, who have been spared a threatened 50 per cent duty on exports to Europe.

Steel and aluminium manufacturers in Europe face an ongoing struggle under sustained tariffs of 50 per cent, which are to remain until a quota system comes into effect. The German steel federation continues to decry the unrelenting pressure on exports to the US, arguing that the latest agreement, whilst averting further escalation, does little to resolve the underlying crisis faced by the sector.