European Commission President Ursula von der Leyen shakes hands with U.S. President Donald Trump in Turnberry, Scotland, on Sunday.Evelyn Hockstein/Reuters
The United States struck a framework trade deal with the European Union Sunday that imposes a 15-per-cent U.S. import tariff on most EU goods, including autos, and leaves 50-per-cent levies on steel and aluminum shipments from the continent.
The announcement came after European Commission President Ursula von der Leyen travelled to western Scotland for talks with U.S. President Donald Trump at his golf course there.
Ms. von der Leyen said the agreed-upon 15-per-cent tariff applies “across the board” to U.S.-bound shipments from the EU.
The deal, while short on details, also includes a commitment by the EU to make US$600-billion of investments in the United States, and to make significant purchases of U.S. energy and military equipment.
“It’s a huge deal. It will bring stability. It will bring predictability,” she said.
The U.S. struck a framework trade agreement with the European Union on Sunday, imposing a 15% import tariff on most EU goods - half the threatened rate - and averting a bigger trade war between the two allies that account for almost a third of global trade.
Reuters
The agreement largely mirrors a framework deal that the U.S. clinched with Japan last week, under which Japanese automobiles will face a 15-per-cent U.S. tariff but U.S. steel and aluminum levies of 50 per cent remain in place.
And it arrives at a critical moment in Canada’s own trade negotiations with the Trump administration.
Prime Minister Mark Carney faces an Aug. 1 deadline to strike a deal before the White House raises an existing tariff on Canadian goods. Mr. Carney and Mr. Trump have both signalled that a deal by the beginning of next month may not happen, with Mr. Carney saying he will accept only the best deal for Canada.
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On the U.S.-EU deal, Mr. Trump said: “We are agreeing that the tariff ... for automobiles and everything else will be a straight across tariff of 15 per cent.”
“Steel is staying the way it is – that’s a worldwide thing,” the U.S. President said of his tariffs on foreign steel.
Mr. Trump, who is seeking to reorder the global economy and reduce decades-old U.S. trade deficits with trading partners, has so far also signed agreements with Britain, Indonesia and Vietnam.
By comparison, the trade deal the President struck with Britain in May would see British cars subject to a 10-per-cent tariff up to 100,000 vehicles and on shipments above, a 25-per-cent rate.
Mr. Trump talked up the new agreement as “the biggest of all the deals,” with total trade between the U.S. and the EU totalling US$976-billion in 2024, according to the Office of the U.S. Trade Representative. Given the size of this relationship, the agreement could set a precedent for future U.S. deals, including with Canada.
Mr. Trump says the latest agreement is 'the biggest of all the deals,' with total trade between the U.S. and the EU totalling US$976-billion in 2024, according to the Office of the U.S. Trade RepresentativeAndrew Harnik/Getty Images
Since returning to office earlier this year, Mr. Trump has hit Canada with a string of tariffs: 50 per cent on steel and aluminum; 25 per cent on autos; and 25 per cent on any goods traded outside the United States-Mexico-Canada Agreement, with the exception of oil, gas and potash, at 10 per cent.
He has threatened to increase the non-USMCA tariff to 35 per cent if there is no deal by Aug. 1.
William Pellerin, a partner with McMillan LLP’s international trade group, said the fact that Mr. Trump doesn’t appear to be cutting steel and aluminum tariffs, or agreeing to lower baseline tariffs with key trading partners, is not a good sign for Canada.
The details of recent deals “show that the tariffs are stickier than we might have anticipated, even for developed economies and close U.S. allies, which is certainly a bit of a bad omen in some ways for Canada,” Mr. Pellerin said.
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He said the silver lining for Canada is it “doesn’t look like anyone’s going to get better market access to the United States than Canada, even if we do get stuck with a baseline tariff.”
Goldy Hyder, president of the Business Council of Canada, said Canada and Mexico are in a different position from other countries. This is both because of the White House rationale for the 25-per-cent tariff on most Canadian and Mexican goods – Mr. Trump cited illegal fentanyl smuggling as one reason – and because of the exemption for products traded in compliance with the USMCA.
Japan and the European Union did not qualify for a USMCA-style exemption and therefore had to “buy down” tariffs with major commitments to purchase U.S. goods or make investments in the United States, he noted.
Mr. Hyder said Canada needs to preserve its special access under the USMCA, which is up for renegotiation in 2026, or possibly sooner.
“Our goal has to be keeping the exemption, and that means preserving and extending the USMCA must be our top priority.”
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There are some significant trade differences between Canada and the EU – and they work in Canada’s favour. For one, Canada is the top destination for U.S. goods exports, according to the USTR, bringing in US$349-billion worth of American goods in 2024.
Canada also has a much smaller trade surplus with the U.S. than the EU. Mr. Trump has taken particular issue with such imbalances, which he considers unfair − even when they benefit American consumers.
Canada also has an intricately linked supply chain with the U.S. in multiple industries, including automobiles and energy, with many products shipped back and forth across the Canada-U.S. border many times before they are sold to end users. The two countries also have an existing trade agreement, the USMCA, which Mr. Trump negotiated during his first term.
Throughout months of talks, European officials threatened reciprocal tariffs on the U.S. and prepared a retaliatory package of tariffs of up to 30 per cent against €92-billion worth of U.S. exports. In the end, however, the EU will not retaliate, despite now facing 15-per-cent tariffs across most goods.
A Volkswagen production facility in Dresden, Germany, in May. German carmakers VW, Mercedes and BMW were some of the hardest hit by U.S. tariffs on car and parts imports.JENS SCHLUETER/AFP/Getty Images
Explaining her rationale, the EU’s Ms. von der Leyen told reporters that the deal will bring “stability” and “predictability.” Yet many key elements of the trade relationship between the U.S. and the EU remain uncertain. For now, Mr. Trump is maintaining his 50-per-cent tariff on steel. And while pharmaceuticals will initially fall under Sunday’s 15-per-cent agreement, that is subject to change.
More details are also needed on the purchase and investment promises. The EU agreed to purchase US$750-billion worth of American energy products and to also invest US$600-billion in the United States on top of existing expenditures, but it is not clear who will make these investments or how they will be enforced.
A similar investment agreement was made by Japan when it announced its own trade deal with the U.S. last week. But within days, Japanese officials started pouring cold water on some of the terms.
Mr. Trump had claimed that the U.S. would make 90 per cent of profits on Japanese investments into the U.S., but Japan later pushed back and said its understanding was that profits would be based on the contribution made, and the risk taken, by each party.
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While Mr. Trump remains far from his initial goal of signing 90 trade deals in 90 days, stock-market investors have been reassured that agreements with major developed countries and regions are finally coming in and that the 15-per-cent tariff rates with major economies are lower than the levels Mr. Trump had threatened during the negotiations.
However, 15-per-cent tariffs are much higher than the equivalent rates at the start of the year, and it isn’t clear yet who will absorb them − companies or American consumers − because so far, price increases have been muted after companies piled up inventory early in the year.
There are signs, however, that some pain is coming − particularly in sectors that Mr. Trump has singled out, including automobiles and steel.
Volkswagen reported earnings on Friday and said tariffs cost the company €1.3-billion over the first six months of the year, and that going forward, the German car maker is lowering its operating profit to a range of 4 per cent to 5 per cent for 2025, down from 5.5 per cent to 6.5 per cent.