On Friday, US president Donald Trump said his administration planned 50 per cent tariffs on imports from the European Union (EU), effective from next Sunday.
By Monday, following what he described as a “very nice phone call” with European Commission president Ursula von der Leyen, he announced that the deadline would be extended until July 9th. Here are the key questions this all raises.
So what happens now?
The EU and US will negotiate to try to reach some kind of agreement before the July deadline, which had already been set by Trump.
Success is far from guaranteed. Sources in Brussels say that Friday’s outburst from Trump came as a surprise. The talks had started slowly and it was clear there were gaps.
The EU remains unclear about what exactly the US side is looking for – Trump has laid out a whole range of complaints about how the EU treats the US.
What are the prospects for the talks?
One key problem remains. The US is looking for unilateral concessions from Europe in a whole range of areas. The EU, on the other hand, wants a more traditional give and take.
A big question is whether the EU would accept that the additional 10 per cent tariffs now in place on most EU imports would still remain in place – the UK signed up to this in its deal.
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Remember that Trump originally threatened the immediate imposition of 20 per cent tariffs on all EU imports on so-called “Liberation Day” in early April, then cut this to 10 per cent to give time for negotiations.
Now the threatened level of additional tariffs has been hiked to 50 per cent. Brussels is also unclear whether Trump will be happy with a few “wins” – for example better terms for US car imports – or will really push for fundamental change.
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What are the crunch issues?
There are plenty. Partly there is a power play under way – to see who sets the rules for global trade in key areas and how far the US can push the EU into concessions across the board and into accepting that some additional tariffs will remain in place.
What might the EU offer?
The first area to watch is tariffs. The EU has already offered the US a so-called “zero for zero” deal on industrial goods, eliminating most existing tariffs on both sides. Tariffs in most areas are not high between the EU and US in any case.
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The second key area is standards. The US complains about EU rules and regulations being used to block imports from the US and make life difficult for US companies in Europe.
There could be some progress here- for example in the rules applying to assessment of imported vehicles – but in fundamental areas like food standards, the EU is unlikely to budge.
This could be a crunch point in areas like chicken and beef, where the US wants access for its food producers. The EU is also unlikely to give fundamental ground on the regulation of the tech sector, though may agree to simplifying rules.
The third area would be US promises to buy more US product – in areas like liquefied natural gas, AI and non-sensitive agri-products such as soyabeans and also co-operate more on AI development to the advantage of the US.
A final area to watch is tax – the EU may be willing to address some of the concerns of the US in the way multinationals are taxed, or might be taxed under the new Organisation for Economic Co-operation and Development (OECD) deal. But will it go further, in terms of EU tax rules? Certainly there will be no move from Brussels on US demands to cut VAT.
What about Ireland?
It is very much in Ireland’s interests that a deal is done, as we are the EU state most exposed to US investment and trade. Ireland has significant exports to the US, particularly food, drink, and pharma, as well as being heavily reliant on US investment.
It is unclear where pharma stands in the US threats of 50 per cent tariffs, as the US president is already awaiting a report on trade in this sector, which could clear the way for special pharma tariffs. How this plays out in terms of the July 9th deadline is worth watching.
And what if the EU and US don’t reach a deal?
It is impossible to know how serious Trump is about additional 50 per cent tariffs, as this would be hugely damaging to the US as well.
However a failure in the talks risking setting off a damaging trade war between the EU and US, with unpredictable consequences for the wider transatlantic economic relationship and significant economic danger for Ireland.
