US-EU Reach Tariff Framework Deal

Action: On July 27, the US and European Union reached an agreement providing that most EU goods will face tariffs of 15%, rather than the 30% recently threatened beginning August 1, with no “stacking” of tariffs (for instance with sectoral tariffs). The 15% tariff is over three times larger than the previous overall average effective tariff rate of 4.8%. EU steel and aluminum, however, will continue to be tariffed at 50%, and the EU also suggested that the two sides have agreed to a list of goods that will have zero duties. The US is the largest partner for EU goods exports, and the second largest partner for EU goods imports.

Trusted Insights for What's Ahead^®

• As with the other agreements with the United Kingdom, Vietnam, Indonesia, Japan, and the Philippines, the agreement is only a framework giving a level of tariffs. Major details of the agreement remain to be negotiated—and the negotiations in some areas, such as digital services, could be difficult.
• The EU also reportedly agreed to purchase $750 billion of US energy and semiconductors over three years and invest $600 billion in the US, including additional defense supplies.
• The 15% rate will apply to autos (down from 25%), while the EU will maintain its 10% rate on US autos. The EU will seek to negotiate a quota arrangement on steel to replace the tariff.
• President of the European Commission Ursula von der Leyen stated that the EU will have zero tariffs for “all aircraft and component parts, certain chemicals, certain generics, semiconductor equipment, certain agricultural products, natural resources and critical raw materials.” But the formal details will have to await negotiations or a revised US tariff proclamation.
• President Von der Leyen praised the agreement as offering “more predictability for our businesses . . . to plan and to invest,” other European reactions varied. While German Chancellor Friedrich Merz and Italian Prime Minister Georgia Meloni supported the deal as avoiding even higher tariffs, French Prime Minster François Bayrou called it a “dark day [.]”
• One important question concerns sectors that are subject to Section 232 investigations that could lead to sectoral tariffs. The US confirmed that EU semiconductors and pharmaceuticals (the EU’s largest export to the US in 2024, with significant imports from Ireland) would face a 15% tariff even if higher tariffs in these sectors are imposed on other countries—but the formal determination of a tariff rate will not come until after the Section 232 investigation concludes. It was clearly important for the EU to seek to negotiate both with respect to the “Liberation Day” tariffs and the current Section 232 investigations.
• Aerospace products are also the subject of a Section 232 investigation and could later face higher tariffs.