US/EU trade agreement underwhelms: CEI analysis

As a follow up to last month’s US/EU trade agreement that set 15 percent blanket tariffs on EU exports to the US (among other provisions), today the two sides revealed additional details about the trade framework, including questions concerning pharmaceutical and semiconductor tariffs and automobile and environmental standards. CEI experts analyze this latest development and point to significant shortcomings.

Ryan Young, Senior Economist:

“While everyone is hoping for some tariff stability, this deal probably won’t deliver it.

“There is a good chance the US Supreme Court will strike down President Trump’s Liberation Day tariffs in the coming months. This would also negate the US-EU trade agreement, which depends on the same 1970s emergency powers statute.

“If the deal seems lopsided in America’s favor, it could be because it is part of a waiting game strategy by the EU. Some evidence for this is that the agreement describes the EU’s pledge to buy specified amounts of American products and invest in American businesses as “intended” rather than guaranteed.

“Even if the Supreme Court upholds this agreement, that may not be the end of the drama. It leaves unresolved disputes on tech policy and agriculture, which Trump could use to blow up the agreement or renegotiate it.

“Trump might also change his mind on other issues such as pharmaceuticals, defense spending, or semiconductors, and blow up the agreement on those grounds.”

Iain Murray, Senior Fellow:

“There are some positive elements in this deal, such as the agreement to pursue mutual recognition of automobile standards and the EU backing off environmental demands over trade; but the American consumer will pay a high price – billions of dollars in increased costs that households can ill afford.

“Lost in the announcement of this deal is the news this week that steel tariffs are being extended to derivative goods. This will hit hard British exporters, who thought they had a good deal with the US, and demonstrates that with this administration, no deal is final.”

Jeremy Nighohossian, Senior Fellow and Economist:

“Overall, this agreement will likely raise prices of brand name pharmaceuticals in the US and have a smaller effect on generic drugs.

“For pharmaceuticals, the maximum tariff rate seems to be 15 percent, even after the Section 232 investigation is completed (which was the vehicle through which Trump was threatening tariff rates as high as 250 percent). So the EU deal seems to put an upper limit that didn’t exist before, as the 232 investigation is ongoing.

“In addition, Trump’s Most Favored Nation drug pricing policy (separate from tariff policies), which seeks to match US drug prices to the lowest prices in foreign countries, will only apply to generic drugs. In general, US generic prices are already lower than European, so this will greatly reduce the breadth of products the policy applies to.

“Generic pharmaceuticals and precursors will be subject to the MFN tariff rate, though this rate is unclear. It was 0 percent prior to 2025, but the dust hasn’t settled from all the changes to the trade system.

“Brand name pharmaceuticals, the larger component of EU exports to US by value, will be subject to the 15 percent rate – an increase from 2024, when it was zero.”