U.S. and EU Agree to Reduce Car Tariffs by 12.5%

United States and the European Union have taken further steps to finalize a trade agreement, outlining a plan to reduce U.S. tariffs on European cars within a few weeks and opening the door to potential preferential tariff rates for steel and aluminum.

The joint statement released on Thursday marked progress on a preliminary agreement announced a month ago. It included specific benchmarks that would allow the EU to gain promised tariff concessions in the automotive, pharmaceutical, and semiconductor industries, as well as new commitments to cooperate on economic security, food standards, and digital trade.

This development highlights the characteristics of trade negotiations under the Trump administration, which typically involve announcing broad agreements initially, followed by weeks or even months of work to finalize the details. Many of these steps are also linked to comprehensive policy changes that take time to fully implement.

For instance, the Trump administration has imposed a uniform 15% tariff on most European goods, half of the previously threatened 30%. However, the U.S. has also pledged to expand the scope of this lower tariff rate to include cars and automotive parts, contingent on the EU formally proposing legislation to eliminate a series of tariffs on U.S. industrial goods and provide "preferential market access" for certain U.S. seafood and agricultural products.

The statement detailed the steps that both sides of the Atlantic need to take. Once the EU "formally proposes the necessary legislative proposal to implement" its promised tariff reductions, the U.S. will officially lower car tariffs. The preferential 15% tariff rate for cars imported from the EU—down from the current 27.5%—will take effect from the first month of the legislative progress.

A senior official from the Trump administration briefed reporters on the measures, stating that these actions could be implemented within a few weeks. Some EU member states, particularly Germany, are eagerly awaiting this change, as the region's 2024 exports of new cars and automotive parts to the U.S. are expected to reach 349 billion dollars.

Additionally, the U.S. is committed to applying lower Most Favored Nation (MFN) tariff treatment to a range of other European products, including aircraft and aircraft parts, generic drugs and other components, and some natural materials like cork.

The statement noted that more industries could be added to the exemption list in the future, but the EU has not yet secured similar treatment for wine, spirits, and medical devices. The U.S. also reiterated that the industry tariff cap for European pharmaceutical products, semiconductors, and wood will remain at 15% in the future.

The statement also laid the groundwork for the possibility of applying preferential tariff rates to certain steel, aluminum, and derivative products under a quota system in the future. This differs from the plan outlined by the White House in July, when the Trump administration insisted that these metal tariffs would remain at 50% to alleviate the trade deficit with the EU and increase revenue for the U.S. treasury.

Regarding steel and aluminum, the joint statement indicated that the EU and the U.S. are currently "considering whether it is possible to cooperate to protect their respective domestic markets from the impact of excess capacity while ensuring the security of their supply chains."

The document did not address several major questions, including how the EU plans to fulfill its commitment to invest 600 billion dollars in the U.S. or to purchase approximately 750 billion dollars worth of U.S. energy resources, including liquefied natural gas, oil, and nuclear products, by 2028.

The statement also indicated that the EU plans to significantly increase its purchases of U.S. military and defense equipment and intends to buy at least 40 billion dollars worth of U.S. artificial intelligence chips.

The joint statement mentioned that the EU intends to provide preferential market access to a series of U.S. seafood and non-sensitive agricultural products, including nuts, certain dairy products, fresh and processed fruits and vegetables, processed foods, seeds, soybean oil, pork, and bison meat.

The U.S. and the EU have committed to addressing what they described as "unreasonable digital trade barriers" in their joint statement. The EU confirmed that it will "not adopt or maintain network usage fees."