EU “Cuts Its Losses” to Avoid Conflict: Accepts 15% Tariff, Adds $600 Billion in U.S. Investment

After months of difficult negotiations, the United States and the European Union have finally reached an agreement.Most EU exports to the United States (including automobiles) will face a 15% tariff.Successfully avoided a trade war that could have severely impacted the global economy.

The agreement was reached less than a week before Trump's scheduled tariff increase was to take effect. Several European leaders, including German Chancellor Merz and Italian Prime Minister Meloni, quickly endorsed it, calling it "sustainable."

Last Sunday, Trump and European Commission President Ursula von der Leyen announced an agreement at his Turnberry golf club in Scotland, but did not disclose full details or release a written document.

"This is the largest agreement in history," said Trump. Von der Leyen added that it would bring "stability" and "predictability."

After the announcement, the euro rose against all G10 currencies in early Sydney trading, with the spot exchange rate against the US dollar increasing by 0.3% to 1.1773. The cumulative gain for the week has reached 1%.

According to the agreement, tariffs on EU goods exported to the US will be much higher than the tariffs imposed by the EU on American goods.Ursula von der Leyen stated that this move aims to rebalance the trade surplus with the United States.However, such unequal terms have angered some European industry organizations, with Germany's main lobbying group accusing the agreement of "sending a deadly signal to closely interdependent economies on both sides of the Atlantic."

The two leaders also have differing interpretations of the key terms of the agreement.Trump stated that the 15% tariff applies to "automobiles and all other goods," but does not include pharmaceuticals and metals. "Steel and aluminum will remain as is," he added, "pharmaceuticals are not related to this agreement."

At the subsequent press conference, von der Leyen made it clear that the 15% tax rate would cover pharmaceuticals, semiconductors, and automobiles, and that there would be no additional sector-specific tariffs. "Metal tariffs will be reduced and a quota system will be implemented," she emphasized.

"The pharmaceutical industry is subject to a 15% tax rate. As for the future decisions of the U.S. president regarding global drug trade, that is another matter," said Ursula von der Leyen. "The overall tax rate should not be underestimated, but this is the best result we could achieve."

Trump revealed thatThe EU agrees to purchase $750 billion worth of U.S. energy products, add $600 billion to existing U.S. investments, open a zero-tariff market for American goods, and procure a "significant amount" of military equipment.Von der Leyen stated that the European alcohol tariffs have not yet been determined but will be resolved soon.

According to informed sources, the EU's commitment to increase investment in the U.S. is key to obtaining a 15% tax rate for the pharmaceutical and semiconductor industries.Before the meeting, the EU anticipated that its pharmaceuticals exported to the US would also face a 15% tariff, which had been a major sticking point in the negotiations.

Bloomberg Economics estimates that without this agreement, the average effective tariff rate in the U.S. would rise from the current 13.5% to nearly 18% on August 1st. The new agreement reduces that figure to 16%.

For several months, Trump has been threatening multiple countries with high tariffs under the pretext of reducing the trade deficit. This uncertainty has put many countries on edge—he once threatened in May to impose a 50% tariff on nearly all EU goods, later reducing it to 30%. This pressure has, in fact, accelerated the negotiation process.Although the new agreement means that EU goods entering the US will face higher tariffs, it avoids the global risk of $1.7 trillion in cross-border trade being drawn into conflict.

Trump claimed that the goal of the agreement is to promote domestic production in the United States and expand opportunities for American companies to enter the European market. Von der Leyen acknowledged that part of the motivation for the negotiations is to restructure the trade order, but emphasized that it is beneficial for both parties.

"The starting point is trade imbalance," she stated, "We hope to maintain transatlantic trade through adjustments, as the world's top two economies, there should have been good trade flow."

This agreement marks the end of months of tense shuttle diplomacy between Brussels and Washington.At the beginning of this month, when Trump threatened a 30% tariff, both sides were close to reaching an agreement. The European Union was prepared to impose additional tariffs on approximately 100 billion euros ($117 billion) worth of American goods—equivalent to one-third of U.S. exports to Europe—in response to the worst-case scenario of a breakdown in negotiations.

Over the past week, negotiators from Europe and the United States have focused their full efforts on the agreement text. The decision by Ursula von der Leyen to personally meet with Donald Trump at his golf estate brought a dramatic breakthrough to the deadlock. According to the discussions, a quota system will be implemented for steel and aluminum imports: those below the threshold will be subject to lower tariffs, while the excess portion will still maintain a 50% tariff rate. The European Union is also seeking to set a cap on special tariffs for future industries.

The European Union has shown willingness over the past few weeks to accept an asymmetric tax rate of around 15% in exchange for tariff exemptions on key industries. The Trump administration currently imposes a 25% tariff on automobiles, while the tax rates on steel, aluminum, and copper products reach 50%. Asian exporting countries such as Indonesia, the Philippines, and Japan have negotiated reciprocal tax rates of 15%-20%. The EU considers the 15% tariff agreement on Japanese automobiles as a breakthrough reference. Negotiations between the United States and countries like Switzerland and South Korea are still ongoing.

Trump stated that he is "negotiating agreements with three or four countries," but for economies with smaller scales or secondary trade relations, he will directly send letters to determine tax rates. In April this year, Trump announced tax increases on almost all trade partners, claiming to revitalize American manufacturing, offset the costs of tax cuts, and correct economic imbalances that "harm American workers," but later postponed the implementation amid market panic.

This U.S. president has criticized the global trade system for decades, with particularly sharp criticism directed at the EU—accusing the organization of being founded with the intent to "take advantage" of the United States. In fact, the EU was established after World War II with the aim of maintaining economic stability on the European continent. Trump has also repeatedly attacked the non-tariff barriers of the 27 EU countries, including value-added tax, digital services tax, and safety and environmental regulations.

An EU senior diplomat revealed that weeks of negotiations tested the EU's willingness to accept an asymmetric outcome, but it also provided an opportunity window for continuing dialogue rather than escalating the conflict.