Japan becomes a "model"? Media reports that Europe and the United States are close to reaching an agreement, and the U.S. will impose a 15% tariff on the European Union
Media reports indicate that the tariff levels agreed upon in the EU-US agreement are similar to those reached in the recent Japan-US agreement, which includes existing tariffs. This means that the automotive tariffs faced by the EU will be reduced to 15%. Both parties will eliminate tariffs on certain products, including aircraft, spirits, and medical devices. If an agreement cannot be reached by August 1, the EU is prepared to impose retaliatory tariffs of up to 30%, potentially affecting €93 billion worth of goods. The euro turned positive during trading and reached a two-week high
Recent news indicates that after reaching a new trade agreement with Japan that set new tariff levels lower than expected, the Trump administration may soon reach a "truce" agreement with the European Union.
On July 23, Eastern Time, media reports citing informed sources stated that the U.S. and the EU are close to reaching an agreement, under which the U.S. would impose a 15% tariff on the EU, similar to the trade agreement reached with Japan this week. The EU may agree to this reciprocal tariff to avoid facing higher tariffs threatened by U.S. President Trump in a recent letter. According to CCTV News, Trump announced on July 12 that starting August 1, a 30% tariff would be imposed on goods imported from the EU.
The informed sources stated that both the U.S. and EU would exempt certain products from tariffs, including airplanes, spirits, and medical devices. They understand that the 15% minimum tariff from the U.S. would include existing tariffs, so the EU believes this agreement solidifies the status quo. This means that the current 25% tariff on automobiles imposed by the U.S. would also be reduced to 15%.
As the news of the U.S.-EU agreement broke near the midday trading session on Wednesday, the euro rose sharply against the dollar, erasing intraday losses and slightly turning positive, while U.S. stocks expanded their gains, breaking above 1.1760, reaching a high not seen since July 8.
When the news broke, the three major U.S. stock indices maintained their upward momentum: the S&P 500 index rose nearly 0.6%, the Dow Jones Industrial Average gained over 370 points, up more than 0.8%, and the Nasdaq rose nearly 0.4%. The overall decline in chip stocks narrowed, with the Philadelphia Semiconductor Index hitting a daily high at the start of the U.S. midday session, with intraday losses of less than 0.2%.
However, the aforementioned U.S.-EU agreement is not set in stone. Media reports mentioned that some U.S. officials stated that the situation is fluid and may change. Moreover, informed sources indicated that if an agreement is not reached with the U.S. by August 1, the EU will continue to prepare a retaliatory tariff plan that could affect goods valued at up to €93 billion, with a maximum tax rate of 30%.
EU reportedly preparing retaliatory tariffs on U.S. products worth €100 billion
Earlier on Wednesday, there were reports that as the August 1 deadline for Trump's threatened high tariffs approaches, the EU is preparing heavyweight countermeasures.
According to media reports, if negotiations break down and Trump follows through on his latest tariff threats, the EU will quickly retaliate by imposing a 30% retaliatory tariff on U.S. products valued at approximately €100 billion (about $117 billion). The related plans are currently in a highly confidential stage, and EU member states are closely coordinating on the specific implementation path A spokesperson for the European Commission revealed on Wednesday that as the first wave of countermeasures, the EU plans to consolidate the previously approved list of tariffs on U.S. products worth €21 billion, along with an additional proposed list of €72 billion in goods, into a comprehensive response plan. Affected U.S. export goods include Boeing aircraft, American-made cars, and bourbon whiskey, among other industrial and consumer products.
Recent reports also indicate that Germany's position in negotiations with the U.S. and Europe has become noticeably tougher. An article from Wall Street Insight this week mentioned that Germany and France are working together to push the EU to adopt strong countermeasures and are utilizing the unprecedented EU "trade nuclear weapon"—the Anti-Coercion Instrument (ACI)—to prepare for a potential trade war. This marks a significant shift in the EU's trade strategy, moving from negotiation to a threat of a strong response.
Lutnick and Bessent Suggest EU Should "Learn from Japan"
On the same day, two senior officials from the Trump administration both hinted in media interviews that to facilitate a trade agreement, the EU should "learn from Japan" by exchanging financing in the form of investments for more favorable tariff treatment from the U.S.
According to CCTV News, Trump sent a letter to Japanese Prime Minister Shigeru Ishiba on the 7th of this month, announcing that starting from August 1, tariffs on almost all Japanese goods exported to the U.S. would be raised to 25%. Meanwhile, on Tuesday evening Eastern Time, Trump announced via social media that the U.S. and Japan have reached a trade agreement: a tariff rate of 15% on Japan and $550 billion in Japanese investment in the U.S.
U.S. Treasury Secretary Bessent stated on Wednesday that Japan was able to obtain favorable tariff rates primarily due to its proposal of innovative financing arrangements, including the establishment of a $550 billion investment fund. He said that Japan "secured a 15% tariff rate because it was willing to provide this innovative financing mechanism."
Bessent mentioned that the $550 billion fund proposed by Japan would be used for investment in the U.S., and all of this funding would be "new capital."
U.S. Secretary of Commerce Lutnick subsequently stated that Japan "bought" lower automobile tariff rates with money, and the Japan agreement could serve as a model for the EU trade agreement, with Trump hoping for the EU to "fully" open its market. He said, "As part of the trade agreement, Japan will fund projects, while the U.S. will select the financed projects. Japan will be the funder, not the operator."
