The agreement lowers the baseline tariff on most European imports to 15% from the Trump administration’s earlier threat of a 30% rate, while committing the EU to invest some US$600 billion in the US.
Governments around the world are racing to reach trade agreements with the US to avert the imposition of the Liberation Day tariffs that were first announced on April 2.
Talks are also taking place between the US and China in Stockholm today, with reports indicating another 90-day extension to the tariff deadline may be in the works.
As Vasu Menon, managing director for investment strategy at OCBC in Singapore, puts it: “The 15% tariff is a pleasant surprise as it is half of what the US threatened to impose on the EU, and it offers hope that other major trading partners of the US could also strike deals of this nature soon”.
The deal appears to mirror the one struck between the US and Japan last week, with a pattern emerging of unilateral investment in exchange for a lower tariff.
That could indicate what to expect as talks go down to the wire with other big economies like China, South Korea and Taiwan.
The new US tariff rate on the EU extends to medicinal and pharmaceutical products and motor vehicles, which were the bloc’s biggest exports to the US last year.
Aircraft and their components, the next biggest segment, will have zero-for-zero tariffs, though the US will keep in place a 50% tariff on steel and aluminium.
Investors welcomed the trade deal that avoids a trade war and could bring clarity for companies.
Pan-region futures climbed 1%, German DAX futures rose 1%, and FTSE futures gained 0.5%.
US equity futures rose 0.4% following the deal, putting the S&P 500 on track for a sixth consecutive day of gains and potentially a new peak.
Earnings from Heineken will headline the corporate diary today as the world’s second-largest brewer counts the cost of tariffs.
However, the firm’s shares will likely get a boost from the newly-agreed framework deal along with automakers and drugmakers in the region.
Key developments that could influence markets today include earnings from Heineken NV, Wise PLC, and EssilorLuxottica SA; UK data: CBI Distributive Trades for July; and debt auctions in France for 3-month, 7-month, 9-month, and 1-year.