EU-US Trade Deal on the Brink of Collapse: Exploring the Consequences

Strategic Insights -

The expiration of the EU-US trade deal on 9 July is looming, with Brussels pushing for immediate relief from tariffs. However, European Union officials acknowledge that even a best-case deal may include asymmetry. The UK, not a participant in the negotiations, may still be affected by a transatlantic tariff war. The US administration has released a negotiation document outlining EU concessions, without offering any reciprocal terms.

Key Takeaways:

  • The US will likely maintain its 10 per cent baseline tariff, with the EU retaliating with 20 per cent tariffs on a quarter of US imports, targeting products worth nearly N100bn, according to Oxford Economics.
  • Ireland and Germany will be the most adversely affected markets, due to their dependence on US exports of cars and pharmaceuticals.
  • A more severe scenario could see the US escalate to 50 per cent tariffs on all EU imports, potentially closing the US market for most EU exports.
  • The EU could retaliate in kind, potentially increasing their 'reciprocal tariffs' to 50 per cent and extending the list of products subject to EU tariffs.
  • The UK, EU's largest trading partner, may experience a slowdown in demand for British exports, given the potential impact of higher tariffs and sluggish growth in the eurozone.
  • The UK has secured a "unique position" through its 'Economic Prosperity Deal' with the US, capping tariffs at 10 per cent, but UK exporters remain at a disadvantage compared to pre-Trump administration levels.
  • Nearly a third of UK firms plan to seek out new markets, with Asia-Pacific and Western Europe emerging as preferred regions, according to Allianz Trade's Global Survey.
  • 87 per cent of businesses expect to re-shore at least some operations to the UK.

Statistics:

  • 9 July: The expiration date of the current EU-US trade deal.
  • 10 per cent: The baseline 10 per cent US tariff that is likely unavoidable.
  • 20 per cent: The EU's retaliatory tariffs on a quarter of US imports.
  • N100bn: The value of products worth nearly N100bn targeted by EU tariffs.
  • 50 per cent: The potential escalation to 50 per cent tariffs on all EU imports, potentially closing the US market for most EU exports.
  • 3.75 per cent: The predicted Bank of England interest rate in August and November 2023.
  • 2.4 per cent: The predicted inflation in the UK for next year.
  • 87 per cent: The percentage of businesses expecting to re-shore at least some operations to the UK.

Sources:

  • https://www.oxfordeconomics.com/
  • https://www.cityam.com/markets-slump-as-trump-unleashes-50-per-cent-tariffs-on-the-eu/
  • Allianz Trade's Global Survey
  • Capital Economics