EU Halts Retaliatory Tariffs Amidst Ongoing US Trade Talks
Automotive and Pharmaceutical Sectors Remain Key Negotiation Points
The European Union has announced a suspension of its retaliatory tariffs against the United States, signaling a de-escalation in trade tensions. This move comes even as crucial details of the recently struck trade agreement, including potential tariff reductions on European automobiles, are still awaiting final approval from President Donald Trump.
US President’s Tariff Threats Continue
Despite the EU’s conciliatory step, President Trump issued fresh warnings of imposing new tariffs on semiconductor and pharmaceutical imports. In a CNBC interview, President Trump specifically mentioned Ireland in relation to future pharmaceutical tariffs, stating, “We’ll be putting a initially small tariff on pharmaceuticals, but in one year – one and a half years, maximum – it’s going to go to 150 per cent and then it’s going to go to 250 per cent because we want pharmaceuticals made in our country.”
He further categorized these potential tariffs as separate from the 15 percent levy on broader EU goods, describing them as “excluded classes.”
“We’re going to be announcing on semiconductors and chips, which is a separate category,”
—President Donald Trump
The EU had prepared to implement higher duties on approximately €93 billion of U.S. exports, which were scheduled to take effect imminently had trade discussions collapsed. A senior EU official described the suspension of these measures as a direct consequence of a political accord being reached, indicating that these retaliatory actions have been “put back into the freezer and we can always take it out if needed.”
Trade Deal Details Still Under Negotiation
Washington and Brussels are actively engaged in finalizing the wording of a joint declaration, anticipated shortly after the meeting between President Trump and European Commission President Ursula von der Leyen in Scotland. Key areas requiring clarification include the timeline for the U.S. to lower its 27.5 percent tariff on European cars to 15 percent, a significant point for German exporters, and the specific product categories slated for zero-tariff treatment.
The EU is also seeking the inclusion of wine and spirits in the zero-tariff list, a priority for France, Italy, and Ireland, though Washington has reportedly resisted this. Discussions are also ongoing regarding chemicals and certain medical devices, with the EU advocating for their exclusion from the 15 percent tariff.
Discussions are also continuing concerning European steel and aluminum exports, currently subject to a 50 percent tariff. The EU is pushing for “tariff rate quotas,” which would allow for lower rates on exports consistent with historical trade volumes, while higher rates would apply above those thresholds. However, U.S. officials have yet to endorse this proposal.
Internal EU Criticism and Strategic Rationale
The trade agreement has faced criticism from some EU member states, including France and Germany, who argue the bloc conceded too much. German Finance Minister Lars Klingbeil commented, “We’re trying to get as many products into the list of exemptions … we have a certain number of sectors where we agree [such as] aircraft and aircraft components,”
while acknowledging that “not all products that we care to see … will be on that list immediately.”
The European Commission, however, defended its position, noting that member states had provided clear signals throughout the negotiation process.
Officials also emphasized that the agreement prevented a full-blown trade war and mitigated the threat of the U.S. withdrawing security guarantees from Europe. President von der Leyen‘s deal incorporates investment pledges and increased purchases of U.S. energy and defense products. “We chose the less bad option and we feel this is the better choice,”
the EU official stated, characterizing the situation as operating within a “second best world.”
According to the World Trade Organization, global trade growth slowed to 1.7% in 2023, highlighting the delicate balance of international commerce and the impact of ongoing trade disputes (WTO, 2024).
