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May 29, 2025
Delayed Increase in US Tariffs on EU Indicates Preference for Negotiated Solution
BLOG — May 29, 2025 Delayed Increase in US Tariffs on EU Indicates Preference for Negotiated Solution By Diego Iscaro, Dijedon Imeri, Marta Kaczmarek, and David Vagenknecht The proposed increase to 50% of tariffs on US imports from the European Union will now be delayed until July 9, leaving more time for a negotiated outcome and avoiding faster imposition of likely EU retaliatory measures. If executed, the 50% rate would probably be temporary, assuming it follows a similar trajectory to US negotiations with China, Mexico and Canada, where tariffs — and countermeasures where applicable — eventually resulted in rollback, negotiated lower rates and/or carveouts. Based on multiple recent precedents, US President Donald Trump’s initial announcement is likely to have been a negotiating tactic seeking faster EU progress on trade talks. Such an outcome presupposes a European willingness to retaliate, which would be likely. The EU’s complex decision-making process and the ongoing Russia-Ukraine war, where continued US aid remains extremely important for Ukraine, would reduce the EU’s options. Learn more about our insights and data If implemented, the 50% tariff would replace the current 10% baseline but would be unlikely to apply to US imports from the EU under Section 232 duties or those listed under Annex II exclusions. Specifically: Following the International Emergency Economic Powers Act (IEEPA) reciprocal pattern, the 50% tariff would replace the current baseline tariff of 10%. Precedents suggest that EU imports currently under Section 232 duties, which are subject to an additional 25% tariff, and those under Annex II exclusions, are likely to be exempt from the 50% tariff. Together, these categories account for about half of US goods imports from the EU. Goods under the Section 232 duties include steel, aluminum, vehicles and parts thereof, and account for nearly 22% of US imports from the EU. Goods listed under Annex II account for 31% of US imports from the EU and are not subject to any additional tariffs. This list includes copper, lumber, pharmaceuticals, semiconductors, bullion, and energy and minerals unavailable in the US. However, some of these goods are currently under Section 232 investigations, raising the possibility of the Section 232 duty being imposed on them. As a result, about half of EU exports to the United States would remain exempt from the increased tariff rate, with the average effective tariff rate rising from 11.9% to 31.8%. The remaining nearly 50% of US imports from the EU remain subject to possible additional “reciprocal” tariffs and would thus be targeted by the proposed 50% rate, instead of the initial “reciprocal” 20% proposed on April 2. With the US taking close to 20% of total extra-EU exports, the proposed 50% tariff poses significant downside risks to our European economic growth outlook. Even if the 50% tariff does not take effect, the threat of its application increases business uncertainty, and thus will dampen the real GDP growth outlook, mainly through constrained private consumption and private investment spending. Given slower economic activity, in our May update, we forecast two additional 25 basispoint (bp) rate cuts by the European Central Bank (ECB) beyond the reduction already anticipated for June 5, bringing the policy rate to a trough of 1.50% by September. The threat of 50% tariffs instead of the “reciprocal” 20% proposed on April 2 is likely to accelerate EU negotiations. In addition to discussions on trade patterns, tariff rates and non-tariff trade barriers, these probably will cover potential EU-US alignment on mainland China, as with an agreement with the United Kingdom that facilitated the US-UK trade deal. While previous overtures by EU officials to their US counterparts indicate willingness to deepen EU-US cooperation in this regard, the EU is very unlikely to fully mirror the US position on China. The pause on US “reciprocal” tariffs on the EU also implies the suspension of EU countermeasures, which consist of a €21 billion package of tariffs on US goods and a possible additional €95 billion package targeting Boeing aircraft, vehicles and bourbon whiskey. Want deeper insight? Listen to our podcast episode on how the EU could respond to US tariffs This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global. Power Plays Key economic, geopolitical and supply chain drivers for 2025 Request Full Report Economic Dynamics in 2025 S&P Global Market Intelligence’s economic experts reveal 10 key trends and forecasts that will influence markets, businesses, and economies this year. Request Full Report