EU-US Trade Talks Focus On Tariff Offset For Automakers

Some European Union carmakers and capitals are pushing for an agreement with President Donald Trump that would allow for tariff relief in return for increasing investments in the US, according to people familiar with the matter.

Member states were briefed on the status of trade negotiations on Friday after a round of talks in Washington this week and were told that a technical agreement in principle was close, said the people, who spoke on the condition of anonymity.

The EU has until July 9 to clinch a trade arrangement with Trump before tariffs on nearly all of the bloc’s exports to the US jump to 50%. The US president has imposed tariffs on almost all its trading partners, saying he wanted to bring back domestic manufacturing, needed to pay for a tax-cut extension and stop other countries from taking advantage of the US. 

US and EU officials will keep negotiating over the weekend, the people said. A European Commission spokesperson didn’t immediately respond to a request for comment. 

Any deal ultimately rests on Trump and expected scenarios for next week include an agreement in principle that maintains the current truce without new tariffs being introduced; talks continue without a deal and country-specific levies that were suspended come into force; or the US considers the EU hasn’t met its terms and announces more unilateral tariffs, according to the people.

German Chancellor Friedrich Merz last month backed the idea of a so-called offsets rule that would provide tariff relief of European carmakers that produce automobiles in the US. 

The commission, which handles trade matters for the EU, has not endorsed an offsetting mechanism for cars, according to the people. EU officials worry such a move would divert production and investments away from Europe. 

The EU has indicated it’s willing to accept an arrangement that includes a 10% universal tariff on many of its exports, but wants the US to commit to lower rates than that on key sectors such as pharmaceuticals, alcohol, semiconductors and commercial aircraft, Bloomberg reported earlier.

The EU is also pushing the US for quotas and exemptions to effectively lower Washington’s 25% tariff on automobiles and car parts as well as its 50% tariff on steel and aluminum.

The people cautioned that discussions remained difficult and member states had different views on the level of imbalance they’re prepared to accept in any deal.

Any initial deal would likely be short and not legally binding, the people said. The two sides are also aiming to reach an agreement on non-tariff barriers, digital trade and economic security. 

Some capitals have said they want a quick deal and don’t want to escalate, while others want to negotiate from a position of strength by responding to Trump’s levies with countermeasures.

The EU has been seeking an initial framework agreement with the US that enables a two-step approach, covering non-tariff matters first and then the detail of Trump’s universal rates and other tariffs to be negotiated beyond the July 9 deadline, the people said.

The two sides have also been discussing agricultural standards and tariff rates, where, one of the people said, the US has offered to bring rates to 17% from the originally planned 20%, which would be above pre-Trump levels. 

Talks on Trump’s sectoral tariffs on cars as well as steel and aluminum have been particularly difficult and are not expected to be solved by next week, said the people.

On economic security, the two sides have been seeking common ground on screening outgoing and incoming foreign investments, as well as export controls, the people said. The US has also been pushing to include public procurement in any agreement.

"We want a negotiated solution, but you will know that at the same time we are preparing for the possibility no satisfactory agreement is reached,” Commission President Ursula von der Leyen told reporters Thursday. “We will defend the European interest as needed — in other words all the instruments are on the table.”

The EU has approved tariffs on €21 billion ($24.7 billion) of US goods that can be quickly implemented in response to Trump’s metals levies. They target politically sensitive American states and include products such as soybeans from Louisiana, home to House Speaker Mike Johnson, as well as agricultural products, poultry, and motorcycles.

The bloc has also prepared an additional list of tariffs on €95 billion of American products in response to Trump’s so-called reciprocal levies and automotive duties. They would target industrial goods including Boeing Co. aircraft, US-made cars, and bourbon. The EU is also consulting member states to identify strategic areas where the US relies on the bloc, as well as potential measures that go beyond tariffs such as export controls and restrictions on procurement contracts.

The EU will assess any end result and at that stage decide what level of asymmetry it’s willing to accept and whether any rebalancing measures would be required, Bloomberg previously reported.