Trump Trade Details Are Murky. China’s Rate Is Key.

The European Union deal announced over the weekend bore some similarity to the pact struck with Japan last week. (BRENDAN SMIALOWSKI / AFP/ Getty Images)

The trade agreement reached between the U.S. and European Union reaffirms an emerging pattern: higher tariffs, purchase commitments, investment agreements—and a lot of confusion.

The pacts are also drawing comparisons to the Phase One trade deal reached during President Donald Trump’s first term. Analysts expect the investment pledges to go the way of the agricultural purchases China promised and never delivered upon, especially as the vows don’t appear to be legally binding.

The EU deal announced over the weekend bore some similarity to the pact struck with Japan last week. The EU agreed to a 15% tariff, higher than the 10% it sought but lower than the 30% threatened. It also agreed to $600 billion in investments and purchases of U.S. goods, specifically $750 billion of energy by 2028.

The EU was still stuck with paying 50% tariffs on steel, aluminum, and copper. But, importantly, it appeared to get sectoral tariffs on autos lowered from 25% to 15% and secured a 15% tariff rate for pharmaceuticals and semiconductors, sectors that are targets in pending Section 232 investigations that are likely to result in more levies.

The initial market read was positive in reducing risks of a further retaliation.

“The deal with the EU clearly suggests that President Donald Trump is—and always has been—negotiating,” says BCA Research’s Marko Papic, who saw the deal as bullish. “He isn’t trying to build some new global architecture that onshore all production into the U.S., which is anyways impossible. Instead, he is selective about which sectors to try to bring back onshore, while looking to maximize revenue from the new taxes—tariffs.”

The Yale Budget Lab estimates U.S. real economic growth will be half a percentage point lower each year from the 2025 tariffs announced so far—including the 15% on the European Union.

The EU deal leaves the region paying higher tariffs, triple the average most-favored nation rate of 5%. But Jacob Funk Kirkegaard, nonresident senior fellow with the Peterson Institute for International Economics, said the deal wasn’t just about trade. It also helps EU’s efforts to keep Trump engaged on national security issues, including Russia’s invasion of Ukraine.

Commitments to buy U.S. goods or make investments in America are part of the blueprint larger trading partners are using—successfully—to avert higher tariffs from snapping into place Aug 1.

Rachel Ziemba, adjunct senior fellow at the Center for a New American Security, calls the EU’s commitment to buy $750 billion of energy from the U.S. by 2028 “a big lift”—both in terms of European demand and U.S. energy providers’ capabilities. For context, the U.S. sold $78 billion in fossil fuels to the EU last year.

While the EU said it wants to reduce its dependence on Russian fossil fuel, it only imported 22 billion euros in energy from Russia last year.

“The European Union will buy more U.S. LNG, especially in coming years, but it’s absolutely not remotely close to $250 billon a year. You would have to assume they stop buying from Norway, which isn’t going to happen,” Kirkegaard adds.

He is also skeptical about the investment commitments. While he expects higher tariffs to increase investment in the U.S., it is likely to the tune of tens of billions of dollars, not close to the $600 billion in the pact.

One concern is that not meeting aspirational targets then becomes grounds for upending the trade deal. Indeed, Trump officials have in the past called China out on the lack of purchases outlined in the agreement.

More broadly, geopolitical consultants say companies are still stuck in a bout of strategic ambiguity, given the dearth of details in these deals, and some discrepancies in what exactly was agreed upon. The U.S. has yet to release a fact sheet for the deal it struck with Vietnam.

Beyond questions about deal terms, companies still need clarity on other issues, including where China’s tariff rate ends up. U.S. officials are meeting with their Chinese counterparts in Stockholm and analysts expect an extension of the current Aug. 12 deadline as the U.S. tries to secure an in-person meeting between Trump and Xi Jinping.

“For companies with supply chains through Asia, it will be critical where China’s tariff rate ends up.” Those rates are currently around 55%.

Monica Gorman, managing director at Crowell Global Advisors, is closely watching sectoral tariffs. If each country’s semiconductor sector, for example, is hit with the same rate, it disincentivizes companies from spending the money to move their supply chains out of China. But if the administration’s policy is to reshape supply chains, then the sectoral rates may be different—causing companies to rethink plans, she adds.

Also unclear: What happens with the 100-plus countries that haven’t gotten as much attention from the administration. Trump said Monday that most countries would pay a baseline tariff of 15% to 20%.

Kierkegaard sees an elevated risk now that smaller countries could end up with higher tariffs than the bigger partners. For Canada and Mexico, analysts see both countries ending up with a similar tariff rate as Japan and the EU for the goods that aren’t covered by the U.S.-Mexico-Canada trade agreement—less than about 30% of its exports.

While the broad blueprints suggest the administration is up for keeping tariffs around 15% for big trading partners in return for some vague commitments to buy and invest in the U.S., geopolitical strategists say the nature of the agreements—including the lack of detailed terms—will keep companies in a fog, even if markets move on.

Write to Reshma Kapadia at reshma.kapadia@barrons.com