US-EU Trade Deal: Key Trader Info

Following a prolonged back-and-forth, the US and the EU struck a trade deal on Sunday. The new levy structure will mean that they will tax most EU goods imported to the US at 15%.

This was lauded as a success by US President Donald Trump and European Commission President Ursula von Leyen. They have noted the importance of avoiding a larger trade war that would disrupt the biggest trade cooperation in the world, accounting for nearly a third of all global trade.

However, the agreement has prompted mixed reactions among EU country leaders, who have criticised the EU for folding under strong-arming tactics.

The euro reacted sharply to the deal, as investors realised that the trade deal favours the US heavily. The deal has also affected many other key industries, like energy, and we will see the results in the future.

The details of the deal

Broadly, the deal imposes a 15% tariff on most EU goods. However, that’s not all. Multiple additional clauses have been introduced, tipping the details of the agreement in the US’s favour.

Here’s a rundown of the things most relevant to traders:

Energies

The EU will purchase $750 billion worth of oil and liquefied gas over three years. In theory, this is a significant win for the US, but experts say it’s unlikely to go through. It would triple EU energy imports and require most American oil to go towards Europe.

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Chip equipment will be exempt from the baseline 15% tariff. Von der Leyen assured that the EU will remain a prominent buyer of AI chips. Dutch chip printing manufacturer ASML and one of the EU’s largest market cap firms is a big winner.

Automobiles

The tariff has been reduced to the baseline 15% from a higher number. In turn, the EU is eliminating all import taxes on US vehicles. Once again, this disproportionately benefits the US and will burden the EU automotive industry.

Military

While Trump bragged about selling military equipment, EU officials deny that this is part of the deal. This leaves the details in the dark, but the US may benefit from rising defense spending across Europe.

Pharmaceuticals

Conflicting information from both sides. The current tariff remains at zero, but it is likely to increase to 15%. Small-margin medication makers have the most to lose here.

Steel

Nontarif quotas similar to the Biden administration and 50% tariffs above. Quotas will be further negotiated. This may be a win for both and a loss for China, depending on the EU’s production capabilities.

General investments

The EU has committed that its companies will invest $600 billion in the US. However, this is largely performative as the EU can’t force the private sector into anything. It’s likely that the number matches what companies would invest regardless of the deal.

Food

While the exact situation is unclear, the EU has vowed to remove tariffs on non-sensitive foods, while sensitive foods will still face levies. Non-sensitive foods may include products like pet food, but sensitive products, which will likely include key agricultural products like beef, will remain taxed.

EU reactions

After the deal was struck, von der Leyen noted that it introduced a degree of stability and predictability in the EU-US relationship. This may mark a turning point in the flow of business affairs, as industries should no longer be affected by unpredictable announcements and retractions. The EU seems to hope that a more stable environment will overcome the fairly poor deal constructed.

Reactions were mixed within member countries were mixed, with some being content that a trading war was avoided, and others giving more neutral statements. Widely, the opinion seems to be that while the worst-case scenario has been avoided, more work needs to be done to reach a mutually beneficial agreement.

François Bayrou, the Prime Minister of France, called Sunday, the day the deal was made, a dark day. On X, he shared that the EU resolved to submission in the face of a hostile trade deal.

Prime Minister of Belgium, Bart De Wever shared a similar sentiment with a slightly less sharp angle. He noted that while the deal is a cause for relief, it’s far from a celebratory moment. Spanish Prime Minister Pedro Sanches said that he backed the deal unenthusiastically, rendering it a harmful necessity.

Ireland’s Prime Minister Micheál Martin also had a mixed stance. He noted that a disastrous situation has been avoided, but also emphasised that the current tariffs will make trade more difficult and less lucrative.

Market reactions and possible outcomes

The deal impacted the Eurozone adversely. Not only is Europe in a factually worse trade position, but investor confidence seems to be shaken. After so much negotiation, accepting a deal worse than the one struck with the UK, for instance, signals a degree of weakness and stokes fear.

The euro reflected that immediately, with the euro index dropping on Monday by 1.3%, its most significant decline in two months, with a tendency to drop further.

Meanwhile, the US dollar strengthened, with its index steadying at 98.66, and it rising against other currencies, with GBP/USD, for instance, dropping to 1.3338.

The long-term impacts may be severe but they depend on multiple factors. As noted, some of the deals are not fully completed. Commodity traders in particular should keep a close eye, as agricultures and some metals like iron are in the air.

Another highlight area is energies.

The oil deal between the EU and US may turn out to be mutually beneficial, but expectations are high. If these expectations are not met, such as in the somewhat likely case that the US cannot contribute the amount of energy goods it’s promised, a significant swing may come.

It’s also fair to expect a period of fluctuation for the USD and EUR, particularly the former. A restructuring in the biggest trade deal in the world is a major shakeup, and it will take time for both currencies to stabilise in their respective pairs.

Negotiations are almost sure to continue, and each new announcement will have a significant market impact. Traders who trade assets based in Europe and the US, as well as general commodities should follow the newscycle closely.

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