US Sets EU Tariff Cap at 15%, Plans to Lower Auto Tariffs Within Weeks

TradingKey - In a joint statement issued on Thursday, the United States and the European Union detailed the framework trade agreement reached in late July. The U.S. reiterated its tariff cap of 15% on most EU goods and pledged to extend this rate to include automobiles and parts, with the reduction in auto tariffs expected in the coming weeks.

The U.S. agreed to cap tariffs on imports of pharmaceuticals, lumber, and semiconductors from the EU at 15%, reversing prior threats of imposing a 250% tariff on pharmaceuticals and 100% on semiconductors.

The EU Trade Commissioner hailed the agreement as the most favorable trade deal the U.S. has ever reached with any partner. Furthermore, this agreement marks just the beginning, with plans to expand its coverage to include more sectors.

Currently, U.S. tariffs on EU autos and parts stand at a hefty 27.5%, placing a significant burden on European automakers. According to the joint statement, once the EU formally submits the necessary legislative proposals and fulfills its commitments to remove a range of tariffs on U.S. industrial products and offer "preferential market access" for certain U.S. agricultural goods, the U.S. will reduce the auto tariff to 15%. Sources indicate that the U.S. will proceed with the tariff reduction as soon as the EU initiates the legislative process.

Additionally, starting September 1, the U.S. will impose Most Favored Nation tariffs only on a few EU products, including aircraft and parts, generic drugs and their ingredients, and certain natural resources like softwood.

The statement reaffirms the commitments the EU must uphold, which include procuring $750 billion worth of U.S. liquefied natural gas (LNG), oil, and nuclear products by 2028, along with an additional $40 billion worth of U.S.-manufactured AI chips. On the investment front, EU companies are set to make an additional $600 billion investment in U.S. strategic industries by 2028, highlighting the mutual interest in cooperation within the energy and high-tech sectors.

Regarding metals, both parties expressed similar intentions. The U.S. has reserved the possibility of reducing certain tariffs on steel, aluminum, and derivatives. In July, the U.S. government insisted on keeping metal tariffs at 50% to help reduce the trade deficit with the EU and bolster U.S. fiscal revenues. However, this statement indicates that both sides "intend to explore cooperation to protect their domestic markets from overcapacity while ensuring the security of each other’s supply chains."