EU struggles to finalise US trade deal under threat of higher auto tariffs

• Trump threatens to increase tariffs on EU cars and trucks to 25% from 15% this week, citing EU non-compliance with terms agreed in Scotland in July 2024
• EU lawmakers demand stronger safeguards including deal suspension if the US fails to comply, conditional tariff cuts, and ending EU concessions entirely by March 31, 2028
• Germany would be among the hardest hit by higher auto tariffs, with Economy Minister Katherina Reiche expressing hope for resolving the challenge through intense talks with US officials

EU-US Trade Deal Summary

Key Development:

The EU is struggling to finalize a trade agreement with the US amid escalating tariff threats from President Trump. On May 6, lawmakers and governments met to resolve a deal eliminating duties on US imports, nine months after initial agreement in Scotland (July 2025).

Tariff Threat:

Trump announced plans to increase tariffs on EU cars and trucks from 15% to 25% this week, citing EU non-compliance with trade agreement terms. The threat loomed over G7 trade ministers meeting in Paris.

Political Impasse:

• EU Parliament demands: Tougher safeguards including suspension provisions if the US fails to comply, conditional tariff cuts tied to US action, and automatic termination of EU concessions on March 31, 2028
• EU Governments' position: Limited appetite for strict safeguards; pushing for swift implementation to avert tariff escalation
• Current status: Parties remain "far apart" with additional talks likely needed in June

Key Players:

• Manfred Weber (European People's Party president) seeks final Parliament vote in May, though prospects appear uncertain
• German Economy Minister Katherina Reiche engaged in intensive talks with US officials; Germany faces significant exposure to auto tariff increases
• EU Trade Commissioner Maros Sefcovic attending Brussels negotiations

Market Implications:

The automotive sector faces immediate pressure, particularly German manufacturers. The unresolved agreement creates continued uncertainty for EU-US trade relations and threatens broader industrial goods and agricultural exports. Swift resolution unlikely given procedural divisions and political demands for protective measures.