Implications of the Trade Agreement Between America and the European Union: Who Will Win and Who Will Lose?

SadaNews Economy - In an announcement described as historic, U.S. President Donald Trump and European Commission President Ursula von der Leyen announced yesterday, Sunday, that they had reached what they considered "the largest trade deal of all time" during a meeting held at Trump's golf course in Scotland.

Although the agreement is still in a preliminary stage and has not been finalized, its implications have already begun to manifest in the financial markets and various economic sectors, sparking broad debate about who will reap the benefits and who might incur losses, according to the BBC.

This announcement represents a significant achievement for the U.S. President, who has long pledged to reshape his country's trade relations with its international partners.

According to an analysis by Capital Economics, the European Union may face a decline in Gross Domestic Product (GDP) by 0.5% due to this deal, reflecting the extent of the concessions made by Europeans in exchange for tariff relief.

Reports also predicted that the deal could inject around $90 billion into the U.S. treasury through revenues from tariffs on European imports, based on trade figures from the previous year, according to the BBC.

However, this gain may not last long, as important U.S. economic data related to inflation, jobs, and consumer confidence is expected to be released this week, which could reveal the effectiveness of Trump's protectionist policies.

The American Consumer: A Direct Loss

Conversely, it seems that the American citizen is the biggest loser in the short term. Although the new tariff on European goods did not reach the maximum expected level (30%), the imposition of a 15% tariff still represents a significant burden.

According to the BBC, these tariffs directly translate into increased prices for imported products, exacerbating the cost of living crisis that Americans have been suffering since Trump returned to the White House.

The BBC clarified that American companies importing goods from the European Union will initially bear these costs, but will likely pass the burden onto end consumers, raising the daily cost of living for millions of families.

Automotive Companies: A Double Paradox

One of the most affected sectors is the automotive sector, as America reduced tariffs on European car imports from 27.5% to 15%, easing the immediate pressure on German companies such as Volkswagen, BMW, and Mercedes, but not completely eliminating the impact of the tariffs.

The German Association of Automobile Manufacturers (VDA) warned that the new tariffs will cost the sector "billions of dollars annually."

On the other hand, American car manufacturers received moral support from the European Union’s reduction of tariffs on American cars from 10% to 2.5%.

However, here lies the paradox: many American cars are assembled in Canada and Mexico, subjecting them to a 25% tariff within the U.S. market, which is higher than that on European cars. This means that local producers may find themselves threatened by unfair competition.

The U.S. Energy Market: The Biggest Winner

A key part of the agreement includes a European commitment to purchase $750 billion worth of American energy, in addition to investments totaling $600 billion across various sectors, including military equipment and nuclear energy, according to statements by Trump and von der Leyen to the media.

Von der Leyen stated, "We will replace Russian gas and oil with massive imports of American liquefied natural gas, oil, and nuclear fuel." This step strengthens the connection of European energy security to the United States, amid a growing shift away from reliance on Russian energy since the Ukraine war.

Shock to the European Pharmaceutical Sector

One of the most controversial issues in the agreement is the pharmaceutical industry. While Trump stated that European medicines were not included in the agreement, von der Leyen confirmed otherwise, causing confusion that harmed European pharmaceutical companies that hoped for complete tariff exemptions.

The importance of this sector lies in its significant reliance on the American market, as seen in the case of "Ozempic," a Type 2 diabetes medication produced by a Danish company and widely sold in America.

In Ireland, political criticism has escalated over the potential impacts of the agreement on the local pharmaceutical sector.

The Aviation Market: Trade Without Friction

In a gesture to ease tensions, both parties agreed to exclude certain strategic products from tariffs, such as airplanes, spare parts, and some chemical and agricultural products.

Von der Leyen indicated that "the European Union is still seeking other mutual exemption agreements, especially in the wine and spirits sectors."

This step could facilitate trade between the world's two largest economic entities without customs complications on specific goods.

The European Union: Heavy Concessions and Internal Fractures

Although the agreement is considered a diplomatic achievement in itself - as the BBC states - the European Union was forced to make heavy concessions. The U.S. maintained high tariffs (50%) on European steel and aluminum exports, and the reduction in tariffs was less than what Brussels sought.

It was notable that criticisms have risen within the European bloc, especially from France and Hungary. French Prime Minister François Bayrou referred to the day of the agreement as "a dark day for the alliance of free peoples," while Hungarian Prime Minister Viktor Orbán remarked that "Trump devoured von der Leyen for breakfast," expressing European dissatisfaction with the outcome of the negotiations.

Despite these divisions, the Commission President believed that the agreement prevents Europe from facing an unbearable trade war amid a slowing economy, considering it "contributes to making trade relations more sustainable," according to her remarks at a press conference following the announcement.

Global Markets: Immediate Reaction

Asian and European stock markets rose immediately following the announcement of the agreement, as financial institutions viewed it as "a market-friendly agreement," according to market analyst Chris Weston at Australian company Pepperstone, who noted that "the agreement provides clarity and stability for investors and strengthens the euro in the short term."

The agreement comes after weeks of U.S. escalation, as the Trump administration imposed what was termed "Liberation Day tariffs" of 30% on EU exports in April.

Since then, Brussels has tried to neutralize the escalation through complicated negotiations driven by economic and security concerns, especially with the increased European dependence on the American defense umbrella amid the Ukraine crisis.

Former EU negotiators, such as John Clark, warned that "the Union was in a weak position and had no choice but to accept," adding that "what happened is a bad day for international trade, but it could have been worse."