Understanding the EU-U.S. Trade Deal: What’s Really Happening

The EU Trade Deal with the U.S.: Maybe, Sort Of…

Lately, the term ‘deal’ has been used somewhat loosely. For me, when people say there is a deal, well, it’s a done deal. Saying “we’ve agreed to work together to arrive at a deal” is not a deal. That’s called a negotiation. Terminology might not matter much when buying a used lawnmower off Craigslist, but it matters tremendously when you’re talking about the global economy.

What EU Trade “Deal” Are We Even Talking About?

The EU and U.S. trade deal, to be clear, does not exist. It may be better defined as a  “framework” for a deal, a “nonbinding gesture,” you know, “concepts of a plan.” To me, this is like your typical divorce case.

At some point, there’s a call to settle the case. Suppose opposing counsel calls me and states, “I think we can settle this case.” Opposing counsel rattles off a list, I jot them down, and respond, “I think we can do this.” However, when I speak with my client, my client disagrees with 30%. So, guess what, there’s no deal!

There’s the framework for a deal. There’s a good faith effort to make a deal, but there’s no deal at the moment. That doesn’t mean we can’t reach one later on, and it doesn’t mean that a large percentage of the issues aren’t agreed to, but it’s not 100%. It’s close, but no cigar. Which brings me to the EU–US trade agreement.

What Has Been “Agreed To”

There’s a 15% baseline tariff on most EU goods entering the U.S., including autos, semiconductors, and generics. Certain sectors, such as aerospace, chemicals, medical equipment, and limited agricultural exports, have zero tariffs on both sides. Zero tariffs all around would be good.

The 15% baseline sounds great. Before, a tariff for one industry was x%, and for another industry or product, it was another percentage. Now, there’s a baseline, but I don’t consider that a positive. Standardizing tariff rates might be simpler, but simpler doesn’t mean better. Especially not for your wallet.

U.S. consumers faced an average tariff of less than 3% per the World Trade Organization. Adding 12% doesn’t help us. Cutting the tariffs in half for cars, one of the European Union’s top exports to the US, is good, especially for car manufacturers like Volkswagen that lost $1.5 billion this last quarter.

Hopefully, this also increases sales for U.S. car makers, where the tariff is reduced from 10% to 2.5%. But, if car makers are assembling cars in Canada or Mexico, which is currently at a 25% tariff, and the imports from the European Union are at 15%, then you can save 10% by buying a European car.

In the meantime, American-made cars are being shipped to Europe because there’s a 2.5% tax, and if Europeans want American cars, that’s good for them. But I’m pretty sure when President Trump wanted to increase U.S. production, it wasn’t to send our cars across the pond and then have Americans buy cars from Europe because they are cheaper than the U.S.-manufactured cars.

There are some positives, but again, not for you and me. To have U.S. energy exports at $750 billion has the energy companies excited, as they just increased their profits, but that doesn’t increase the balance in your checking account.

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The fact is that all 27 members of the European Union need to sign off on this deal. So think of it as two CEO’s at a bar writing down an outline of a deal on a cocktail napkin, but now they have to go back to their Board of Directors and convince them, all of them, not just a quorum like is required for a business, to sign off on this deal.

But, that’s why I felt compelled to write this blog because on social media people are posting there’s a deal, “promises made and promises kept,” and “President Trump is working for you.” But again, the fact is, there is no deal.

This, besides the fact that details have to be hammered out, which means the deal can fall apart at any second, just like any deal. For example, the EU trade doesn’t address steel and aluminum, which are at 50%. Do you enjoy a glass of wine with your dinner? Well, wine and spirits have yet to be resolved either, and just those two products alone could result in the deal falling apart.

So while the photo op looked great, at this very moment, no one has signed on the “dotted line.”

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