Will it be Tariffs or a Trade Deal for the US and the EU

United States President Donald Trump’s on-again, off-again tariff policy continued as he threatened to impose tariffs on a range of additional imports in recent days. Most notably, the US president threatened to impose a 50% tariff on all goods imported from the European Union and a 25% tariff on all imported iPhones. He later delayed the 50% tariff on EU imports until July 2025, easing, for now, fears of a trade war between the United States and the European Union. Meanwhile, several European leaders called for a trade deal between the US and the EU to be reached as soon as possible. Therefore, the next few weeks will determine the future trade relationship between two economies that account for nearly 45% of global economic output.

What is Happening

• In recent months, United States President Donald Trump has threatened to impose various tariffs upon imports from the European Union. First, as part of his global “reciprocal” tariffs, President Trump threatened to impose 20% tariffs on imports from the EU, before settling on a 10% tariff that was imposed on all imports into the US. Then, seemingly out of the blue, the US president announced plans for a 50% tariff on EU imports, claiming that the EU had been taking advantage of the United States.

• After United States President Donald Trump imposed, then postponed, 50% tariffs on imports from the European Union, several EU leaders moved quickly to try and have these tariffs delayed, and to possibly secure a trade deal between the EU and the US. For example, the president of the European Commission, Ursula von der Leyen, called US President Donald Trump shortly after the 50% tariffs were announced to convince him to postpone these new tariffs. This strategy appeared to work as these tariffs were postponed until July, but the two leaders also quickly agreed to fast-track negotiations on a US-EU trade deal.

Implications

• These next weeks will be crucial in the trade and investment relationship between the United States (and its $31 trillion economy) and the European Union (and its $20 trillion economy). For the US, a trade deal with the European Union would help steady nerves caused by the recent economic uncertainty resulting from the seemingly chaotic economic policies emanating from the White House. For the European Union, this will be a crucial time for that bloc’s economy, as its dependence upon trade to generate growth is significantly greater than that of the United States and as its economy has been in a terrible slump in recent years.

• The global economy faces a very uncertain summer as a series of potentially devastating trade disputes hover over the future of the global economy. For example, the Trump Administration’s “reciprocal” tariffs are due to come back into effect in July, while the 145% tariff on Chinese imports was postponed only until August. Now, the US and the EU also face the prospects of having to reach a deal before the US’ 50% tariff on EU imports goes into effect in July. Should the markets believe that one or more of these massive tariffs will be implemented, or if they actually are implemented, a high degree of volatility can be expected. On the other hand, if more comprehensive trade agreements can be reached, the level of uncertainty in the global economy could ease, resulting in higher levels of consumer, business and investor confidence.

Summary

2025 has been a year dominated by economic uncertainty, which much of this uncertainty coming from the place that had been the source of much of the global economy’s growth and stability, the United States. These coming months will therefore determine whether or not the US will continue to be a source of instability and uncertainty in 2025, or if the US will return to its role as the leading driver of growth for the global economy, as well as the primary safe haven for businesses and investors in times of higher degrees of global risk and uncertainty.