EU, US Reach Deal to Avoid Trump Tariff Hike Before Deadline

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(Bloomberg) — The US and European Union agreed to a deal that will see the bloc face 15% tariffs on most of its exports, including automobiles, staving off a trade war that could have delivered a hammer blow to the global economy.

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The pact comes less than a week before a Friday deadline for President Donald Trump’s higher tariffs to take effect. The president in May threatened to impose a 50% duty on nearly all EU goods, adding pressure that accelerated negotiations, before lowering that to 30%.

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Trump announced the deal Sunday after a meeting with European Commission President Ursula von der Leyen. He said the charge would cover automobiles. The European leader said the rate would be “all inclusive,” though Trump said later it did not include pharmaceuticals and metals. Steel and aluminum “stays the way it is,” the US president added. 

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“I think that basically concludes the deal,” Trump told reporters at his golf club in Turnberry, Scotland. “It’s the biggest of all the deals.”

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Von der Leyen said the agreement “will bring stability” and “it will bring predictability.”

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The EU agreed to purchase $750 billion in energy, invest $600 billion in the US on top of existing investments, open up countries’ markets to trade with US at zero tariffs and purchase “vast amounts” of military equipment, Trump said.

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The transatlantic pact removes a major risk for markets and the global economy — a trade war involving $1.7 trillion worth of cross-border commerce — even though it means European shipments to the US are getting hit with a higher tax at the border. 

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The goals, Trump said, were more production in the US and wider access for American exporters to the European market. Von der Leyen acknowledged that part of the drive behind the talks was a rebalancing of trade, but cast it as beneficial for both sides.

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“The starting point was an imbalance,” von der Leyen said. “We wanted to rebalance the trade we made, and we wanted to do it in a way that trade goes on between the two of us across the Atlantic, because the two biggest economies should have a good trade flow.”

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US and European negotiators had been zeroing in on an agreement this past week. Officials have discussed terms for a quota system for steel and aluminum imports, which would face a lower import tax below a certain threshold and would be charged the regular 50% rate above it. The EU had also been seeking quotas and a ceiling on future industry-specific tariffs, but it’s unclear if the initial agreement will shield the bloc from potential levies that have yet to be implemented. 

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US Commerce Secretary Howard Lutnick said a decision on semiconductors, which, like drugs are subject to an ongoing investigation that opens the door to separate tariffs, would be dealt with in roughly “two weeks.”

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The announcement capped off months of often tense shuttle diplomacy between Brussels and Washington. The EU had prepared to put levies on about €100 billion ($117 billion) — about a third of American exports to the bloc — if a deal wasn’t reached and Trump followed through on his warning.