8 months ago
U.S.-EU trade deal seen reducing European growth by 0.5% - Capital Economics
Investing.com - A trade deal with the U.S. has helped the European Union avoid the worst of a tariff war with the world’s largest economy, but it remains to be seen how long this truce will last for, according to analysts at Capital Economics.
In a note, the analysts led by Jack Allen-Reynolds flagged that the average tariff rate on U.S. imports from the EU will now rise to around 17% from just 1.2% in 2024 -- an increase that they predicted will reduce growth in the bloc by around 0.5%.
Washington and Brussels reached a landmark trade agreement on Sunday that includes a 15% tariff on EU goods entering the U.S. The tariff applies to a wide range of items, including semiconductors and pharmaceuticals.
However, there are some exceptions, such as a 50% levy on steel and aluminum that will remain in place.
The broad-strokes deal encompasses significant EU purchases of U.S. energy and military gear, along with substantial investments in the American economy.
U.S. President Donald Trump said the European Union has committed to purchasing $750 billion worth of energy from the United States. He also stated that the EU has agreed to make $600 billion in investments in the U.S.
"They are agreeing to open up their countries to trade at zero tariff," Trump told reporters. He added that the EU would "purchase a vast amount of military equipment" from the U.S.
European Commission President Ursula von der Leyen confirmed the agreement would include 15% tariffs across the board, noting that this measure would help "rebalance" trade between the two major trading partners. Of the $3.3 trillion in goods imported by the U.S. last year, more than $600 billion came from the 27-member EU.
The pact could help bring some calm to investors, who had been wary that both sides could fail to reach a deal before August 1, when Trump’s sweeping "reciprocal" tariffs are due to come into effect. The EU had been facing heightened levies of 30%, and had reportedly been pushing for a zero-for-zero agreement with the White House.
"[F]or now the deal has avoided a much bigger and more damaging increase in U.S. tariffs, as well as EU retaliation. This will reduce uncertainty in the near term and has understandably been greeted positively by the markets this morning," the Capital Economics analysts said. European stocks have risen to a four-month high, while U.S. stock futures pointed higher on Monday.
However, the fine details of the agreement have yet to be ironed out, the analysts flagged, adding that Trump could "still change his mind even after the deal has been finalized and signed."
"So uncertainty is likely to remain high for the foreseeable future," they said.
Click Subscribe. #USEUTradeDeal #EuropeanGrowth #Economics #TradeImpact #MarketAnalysis
0
0
0
0
