US-EU trade deal wards off further escalation but will raise costs for
companies and consumers
[July 28, 2025] By
DAVID McHUGH
FRANKFURT, Germany (AP) — President Donald Trump and European Commission
President Ursula von der Leyen have announced a sweeping trade deal that
imposes 15% tariffs on most European goods, warding off Trump's threat
of a 30% rate if no deal had been reached by Aug. 1.
The tariffs, or import taxes, paid when Americans buy European products
could raise prices for U.S. consumers and dent profits for European
companies and their partners who bring goods into the country.
Here are some things to know about the trade deal between the United
States and the European Union:
Many details remain to be decided
Trump and von der Leyen's announcement, made during Trump's visit to one
of his golf courses in Scotland, leaves many details to be filled in.
The headline figure is a 15% tariff rate on “the vast majority” of
European goods brought into the U.S., including cars, computer chips and
pharmaceuticals. It's lower than the 20% Trump initially proposed, and
lower than his threats of 50% and then 30%.
Von der Leyen said the two sides agreed on zero tariffs on both sides
for a range of “strategic” goods: Aircraft and aircraft parts, certain
chemicals, semiconductor equipment, certain agricultural products, and
some natural resources and critical raw materials. Specifics were
lacking.
She said the two sides “would keep working” to add more products to the
list.
Additionally, the EU side would purchase what Trump said was $750
billion (638 billion euros) worth of natural gas, oil and nuclear fuel
to replace Russian energy supplies, and Europeans would invest an
additional $600 billion (511 billion euros) in the U.S.
50% U.S. tariff on steel stays and others might, too
Trump said the 50% U.S. tariff on imported steel would remain; von der
Leyen said the two sides agreed to further negotiations to fight a
global steel glut, reduce tariffs and establish import quotas — that is,
set amounts that can be imported, often at a lower rate.
Trump said pharmaceuticals were not included in the deal. Von der Leyen
said the pharmaceuticals issue was “on a separate sheet of paper” from
Sunday's deal.
Where the $600 billion for additional investment would come from was not
specified. And von der Leyen said that when it came to farm products,
the EU side made clear that “there were tariffs that could not be
lowered,” without specifying which products.
The 15% rate is higher than in the past
The 15% rate removes Trump's threat of a 30% tariff. It's still much
higher than the average tariff before Trump came into office of around
1%, and higher than Trump's minimum 10% baseline tariff.
Higher tariffs, or import taxes, on European goods mean sellers in the
U.S. would have to either increase prices for consumers — risking loss
of market share — or swallow the added cost in terms of lower profits.
The higher tariffs are expected to hurt export earnings for European
firms and slow the economy.
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 The 10% baseline applied while the
deal was negotiated was already sufficiently high to make the
European Union's executive commission cut its growth forecast for
this year from 1.3% to 0.9%.
Von der Leyen said the 15% rate was “the best we could do” and
credited the deal with maintaining access to the U.S. market and
providing “stability and predictability for companies on both
sides.”
The reaction is tentative
German Chancellor Friedrich Merz welcomed the deal which avoided “an
unnecessary escalation in transatlantic trade relations" and said
that “we were able to preserve our core interests,” while adding
that “I would have very much wished for further relief in
transatlantic trade.”
The Federation of German Industries was blunter. "Even a 15% tariff
rate will have immense negative effects on export-oriented German
industry," said Wolfgang Niedermark, a member of the federation's
leadership.
While the rate is lower than threatened, "the big caveat to today’s
deal is that there is nothing on paper, yet," said Carsten Brzeski,
global chief of macro at ING bank.
“With this disclaimer in mind and at face value, today’s agreement
would clearly bring an end to the uncertainty of recent months. An
escalation of the US-EU trade tensions would have been a severe risk
for the global economy," Brzeski said.
“This risk seems to have been avoided.”
Car companies expect higher prices
Asked if European carmakers could still sell cars at 15%, von der
Leyen said the rate was much lower than the current 27.5%. That has
been the rate under Trump's 25% tariff on cars from all countries,
plus the preexisting U.S. car tariff of 2.5%.
The impact is likely to be substantial on some companies, given that
automaker Volkswagen said it suffered a 1.3 billion euro ($1.5
billion) hit to profit in the first half of the year from the higher
tariffs.
Mercedes-Benz dealers in the U.S. have said they are holding the
line on 2025 model year prices “until further notice.” The German
automaker has a partial tariff shield because it makes 35% of the
Mercedes-Benz vehicles sold in the U.S. in Tuscaloosa, Alabama, but
the company said it expects prices to undergo “significant
increases” in coming years.
Trump had cited the trade gap with Europe
Before Trump returned to office, the U.S. and the EU maintained
generally low tariff levels in what is the largest bilateral trading
relationship in the world, with some 1.7 trillion euros ($2
trillion) in annual trade. Together the U.S. and the EU have 44% of
the global economy. The U.S. rate averaged 1.47% for European goods,
while the EU's averaged 1.35% for American products, according to
the Bruegel think tank in Brussels.
Trump has complained about the EU’s 198 billion-euro trade surplus
in goods, which shows Americans buy more from European businesses
than the other way around, and has said the European market is not
open enough for U.S.-made cars.
However, American companies fill some of the trade gap by outselling
the EU when it comes to services such as cloud computing, travel
bookings, and legal and financial services. And some 30% of European
imports are from American-owned companies, according to the European
Central Bank.
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