Some have come up with the label ‘strategic uncertainty’, trying to describe the never-ending trade and tariff saga of the US administration. We have stopped speculating about the whether or not there is a longer-term strategy. We only know that financial markets seem to have grown numb, while at the same time the tariff threat is still for real. In the European case, a 30% universal tariff could shave off some 0.4pp of GDP growth, pushing the European economy back to the brink of recession. And this is not even counting the toll the tariff uncertainty since April will be taking on investment decisions.
And even though we have stopped speculating, you want to hear a base case scenario from us. Here it is: we still expect some kind of deal before 1 August that will bring a universal tariff of 10% and sectoral tariffs of between 20% and 25% for the EU. As a result, the EU would be facing an effective US tariff rate of close to 20%. Is this a conviction call? No.
To make things even more complicated, even a deal wouldn’t mark the end of the tariff saga. First of all, don’t forget that trade deals are not written on a one or two-pager but normally consist of hundreds of pages. Negotiations don’t last weeks but rather months and years. Therefore, any “big, beautiful deal” that might be reached over the next weeks will not come with a guarantee that it will last. Whether it holds for weeks, months, or years depends entirely on the whims of the US administration. In today’s trade landscape, nothing can be taken for granted. Global trade is only going to become more volatile. The search for new trade partners – like between the UK and India, or the Comprehensive Economic Partnership Agreement (CEPA) announced over the weekend between the EU and Indonesia – is a clear sign of this.
Donald Trump’s letter to the EU is not a love letter but also not a hate letter. It’s a letter to increase pressure in the ongoing negotiations. The next days and weeks will tell whether Europe is willing and able to compromise to the US liking. In any case, the letters of the last week suggest that a make-it-or-break-it moment in the tariff saga is getting closer.