The EU-US customs deal: Better than its reputation!

Immediately after the agreement between US President Donald Trump and EU Commission President Ursula von der Leyen on a trade deal was announced on 27 July 2025, the outcome was sharply criticised by numerous European observers. The President of the German ifo Institute, Clemens Fuest, spoke of humiliation by the US. French Prime Minister François Bayrou even spoke of Europe's submission.

Critics agree that the agreement is an expression of Europe's weakness. And indeed, one cannot help but feel that the EU was unable to bring sufficient economic and geopolitical clout on the table to dissuade President Trump from his plans to drastically increase customs duties on European products. Even if the announced 15 per cent base duty remains below the latest threats, it still represents a significant increase compared to the ex-ante status.

For European companies wishing to sell their products in the US, the deal is therefore a considerable burden, which will be particularly noticeable in Germany with its still strong manufacturing industry and will cost economic growth. In the opinion of many critics, the EU should therefore have responded to the US tariffs with its own retaliatory tariffs in order to sanction Trump's actions.

European consumers are the winners

However, what is being overlooked in the heated debate is that the decision not to impose European retaliatory tariffs is good news for consumers! Additional tariffs on US imports would have led to higher prices and poorer supply. These rising prices would also have affected businesses, as they are often dependent on intermediate products from abroad in today's complex value chains and are therefore just as reliant on cheap imports as private consumers.

The Budget Lab at Yale University has calculated how tariffs are affecting consumers' wallets in the United States. The German Handelsblatt newspaper reported that, according to calculations by the researchers at Yale, the current US tariff rates are expected to cause a short-term price increase of 1.8 per cent, which corresponds to an average income loss of 2,400 US dollars per household this year. Fortunately, European households are spared this burden!

For some goods, the reshaping of transatlantic trade could even lead to falling prices in Europe. This is because domestic companies could try to sell goods in the EU that cannot be sold on the US market, or at least not to the same extent, due to the new tariffs. This could lead to greater supply and falling prices. The same applies to companies from third countries, which are themselves affected by drastically increased US tariffs. For them, too, the affluent European market could be an alternative to compensate for declining sales in the US.

Trump's tariff policy remains erratic

It is still completely unclear how the political agreement of 27 July 2025 will be implemented in a legally binding manner. This applies above all to the commitments made by the EU that go beyond duty-free imports from the US, such as the purchase of energy sources or additional investments in the US. This is because, in a market economy, for good reasons the companies make their own investment decisions without government guidelines. It is therefore conceivable that there may still be changes to the current state of affairs in one area or another. This is all the more true since Donald Trump's erratic political style leaves little room for certainty. It is therefore pure speculation as to whether the EU should have escalated the tariff dispute in order to prevent worse things from happening in the future.

What is clear is that the break with the principles of the global trade order that has prevailed to date, initiated by the US, will lead to a shift in the flow of goods and investment decisions. And US companies that produce in the US for the global market will certainly not be happy about their competitiveness deteriorating because they may now have to pay more for intermediate products from abroad. In this respect, European companies could also benefit to some extent in global competition because they do not have to bear these higher costs for their intermediate products.