Tariff Deals, US/EU Edition
Media Hit, 7/28/25
I’ve got a radio show bright and early this morning with Jay Oliver of Long Island News. I was last on with him back in February, talking about tariffs. This time, we’ll be talking about trade deals, specifically the new deal between the US and the EU.
I’ve actually been on PTO all of last week and am going to be out all of next week, too. While I’ve been reading the usual suspects on the news front, I’ll confess that I haven’t been paying as much attention to things as I normally would be. From what I have seen, I picked a spectacularly bad two week stretch to be on break - there’s just SO. MUCH. that has happened! And honestly, I can’t wait to get back from PTO and get down to work dissecting it and talking about it as much as anyone will listen.
Links I’m reading:
Talking Points:
So what we have right now is a 15% tariff on all* EU goods coming into the US.
* Notably, there are exceptions for “aircraft and plane parts, certain chemicals, and some agricultural products.”
The global 50% tariff on steel and aluminum will stay in place.
In exchange, the EU is placing zero tariffs on all US goods, they will “boost their investment in the US by $600 billion, including American military technology, and spend $750 billion on energy.”
If we’re going to judge this as a “good deal,” we need to ask the good economist’s favorite question: as compared to what?
Here, we should compare what we have now to what we had in 2024, before Trump took office. Why is that the relevant comparison? Because if we’re going to say that things are “better” on some benchmark, we need to look at what the world was before the Trump administration.
Some will say that the relevant benchmark is the 30% rate that Trump threatened. This is nonsense on stilts. That’s like saying when a thief pulls a gun on you and says “your money or your life” and instead settles for half of your money before letting you go, you say, “wow, I got a great deal!”
Tariff rates by product varied, but on average the EU imposed a 3.95% tariff on US goods and the US in return imposed a 3.5% tariff on EU goods.
So here’s what happened: the US more than quadrupled our tariffs on the EU while they eliminated theirs against us.
So who wins in this exchange? The people of the EU! They’re getting better access to American goods and services!
Who loses? Well, the American people! We’re getting worse access to EU goods and services.
Some will point out, “but this will lead to more jobs in the US because Europeans are going to be buying more of our stuff!”
Let’s assume that this is true. But here’s my question: how much more?
Are they going to start buying a lot more American made cars? Probably not. Have you seen European roads??
Are they going to start buying American made chicken? Probably not.
Are they going to start buying a whole lot more American beef? Probably not.
I don’t see this as massively increasing our exports to the EU. Their tariff rate on us was already quite low. And, if we factor in the rest of the world’s sentiment against the US right now, well, I really just don’t see this one being a huge win for the American worker.
And actually, there’s good reason to suspect that the net effect on American jobs will be negative.
Think of the auto industry, one that as a Michigander and given my family’s history, is near and dear to me.
Thanks to the tariffs, a batch of steel and aluminum that is brought into the US to be turned into cars is now taxed at 50%.
But a fully assembled car, which is really just a batch of steel and aluminum plus work that comes from Europe is now taxed at the relatively much lower 15%.
If anything, this will improve the European auto industry and increase the availability of their cars on our roads.
All that being said, it is clear to me that a deal is better than no deal. Markets will probably surge on the news, which is not a bad thing, and this will likely help make other deals possible going forward.
The world is quickly concentrating around three economic superpowers: the US, China, and the EU.
Having a trade deal between two of these three is important, even if it’s not as good a deal for us as what we had in the Before Times.