Deep dive: US and EU, an historic trade agreement with a 15% tariff framework - Trade Treasury Payments

The United States and European Union have finalised a landmark trade agreement that will substantially reshape their economic relationship. Following months of intense negotiations and periodic exchanges of tariff threats, President Donald Trump and European Commission President Ursula von der Leyen announced the deal on 27th July 2025, during a meeting at Trump’s luxury golf course in Turnberry, Scotland. This meeting took place against a backdrop of escalating tariff threats, with Friday, 1st August, looming as a critical deadline before higher tariffs would have taken effect.

President Trump described the deal as “the biggest deal ever made” following the conclusion of talks. “We’ve secured tremendous commitments from Europe that nobody thought was possible,” he said. Von der Leyen acknowledged the challenging nature of the talks, stating, “I knew it at the beginning, and it was indeed very tough. But we came to a good conclusion for both sides.”

This agreement marks a pivotal moment in what has been described as the world’s largest bilateral trading relationship, valued at approximately $1.96 trillion last year. The successful negotiation averts what might have developed into a prolonged economic standoff and potentially an all-out transatlantic trade war.

Tariffs lower than the initial hike threat 

Under the terms announced by both leaders, the European Union has committed to purchasing $750 billion worth of American energy products, including oil, gas, nuclear fuel, and semiconductors. This comes alongside a pledge for $600 billion in European investment into the United States, primarily directed toward military equipment purchases.

In exchange, the United States has agreed to implement a 15% import tax on most European products. This rate stands at half the 30% tariff that was scheduled to take effect on 1st August, and significantly below the 50% rate that President Trump had briefly threatened in May.

The agreement also establishes zero-for-zero tariffs on several categories of goods, including aircraft and component parts, certain chemicals, agricultural products, and critical raw materials. These provisions create tariff-free corridors for specific industries deemed strategically important by both parties. The European Union has also formally recognised US vehicle standards, simplifying exports from American carmakers.

Some critical exclusions apply, such as a 50% US tariff on steel and aluminium, which will remain in place globally, as Trump indicated that no workable quota system has been finalised for these materials. Negotiations continue regarding potential exemptions for European wines and spirits. 

Trade deal impact across industries 

The US-EU trade agreement has significant implications across multiple industries and supply chains. European Commission President von der Leyen emphasised on the benefits, “Today, with this deal, we are creating more predictability for our businesses. In these turbulent times, this is necessary for our companies to be able to plan and invest.” The arrangement would provide “immediate tariff relief” with “a clear impact on the bottom lines of our companies.”

For the automotive sector, the 15% tariff represents a mixed outcome. While higher than pre-2024 levels, it marks a reduction from the global 25% rate previously applied. The pharmaceutical industry, representing Europe’s highest-value export to the United States at $155 billion last year, faces significant challenges. Despite initial hopes for a complete exemption, pharmaceuticals will be subject to the 15% tariff. This has sparked concerns, particularly in Ireland, which is the top single foreign country supplying pharmaceuticals to the United States. However, some pharmaceutical items may still receive exemptions, as technical negotiations continue.

For the aerospace industry, the news is more positive. Aircraft and component manufacturers will benefit from zero tariffs between the trading blocs, ensuring friction-free trade for this strategically important sector.

What do EU members say about the deal?

Ireland, which relies heavily on the U.S. as an export market with goods worth £72.60 billion ($60.40 billion) exported in 2024, has expressed cautious relief. Irish Prime Minister Micheál Martin acknowledged that while the tariffs would make trade “more expensive and more challenging” compared to previous arrangements, the agreement would nonetheless bring a new era of stability and help protect jobs in Ireland.

German Chancellor Friedrich Merz welcomed the agreement, noting it had averted a trade conflict that “would have severely impacted the export-oriented German economy.” He highlighted particular benefits for the auto industry, where “the current tariffs of 27.5% were almost halved to 15%.” However, Wolfgang Niedermark of Germany’s industrial federation BDI cautioned that “even a 15% tariff rate will have immense negative effects on export-oriented German industry.”

French reactions have been more critical. Prime Minister Francois Bayrou characterised the agreement as “a dark day when an alliance of free peoples, brought together to affirm their common values and to defend their common interests, resigns itself to submission.”

Netherlands Prime Minister Dick Schoof offered a pragmatic assessment, stating that “no tariffs would have been better,” but praised the European Commission for securing the best agreement possible under the circumstances.

Italy’s Prime Minister Giorgia Meloni called the tariff level “sustainable” but indicated she needed to see further details before offering a comprehensive assessment.

Broader context and future outlook

The trade negotiations occurred against a backdrop of other diplomatic challenges. It represents a significant milestone in President Trump’s stated objective to restructure global trade relationships, which he has consistently characterised as disadvantageous to American interests. This deal follows similar arrangements with the UK, Japan, Indonesia, the Philippines and Vietnam, though it falls short of the administration’s ambitious goal of 90 deals in 90 days.

The EU’s top trade officials will meet to review the agreement details, as the Commission’s negotiating mandate requires approval from member states. The Commission’s ambassadors were scheduled to meet on Monday, 28th July, for a debrief from the negotiating team. Although the broad outlines have been established, considerable work remains to be done to implement the full scope of the agreement. The deal is subject to final approval processes in both jurisdictions and is expected to take effect by the end of 2025.

The implementation process, ongoing technical negotiations, and political developments on both sides of the Atlantic will ultimately determine whether this agreement marks the beginning of a sustainable new chapter in EU-US economic relations or merely postpones more fundamental disagreements about the structure of international trade.