US lowers tariffs on EU carmakers to 15%

The trade agreement between the United States and the European Union is sealed. The US is cutting tariffs on cars (including electric cars) from the EU from 27.5 to 15 per cent – retroactive to 1 August. It marks an improvement on the status quo, but for many it still means tough business.

EU carmakers had waited in vain since 27 July – the day Donald Trump and Ursula von der Leyen announced their deal in the trade dispute – for the promised tariff cuts. The US initially withheld implementation, citing conditions for the EU. Only now has Washington confirmed the reduction – backdated to 1 August. According to a joint statement from the US Department of Commerce and the US Trade Representative, the EU “hhas formally introduced the necessary legislative proposal to enact the tariff reductions called for by the Framework Agreement.”

Trump and von der Leyen announced the breakthrough in late July. The deal set a 15 per cent tariff on most EU products imported into the US. The two sides also agreed to cut tariffs on cars of all drive types from 27.5 to 15 per cent (the 27.5% rate had applied since April). While the US implemented the 15% rate on most goods on 7 August, EU carmakers continued to wait for relief on vehicles.

Further talks delayed implementation. The EU said at the end of August that a joint statement was only possible after “intensive negotiations led by EU Trade Commissioner Maroš Šefčovič with his US counterparts, Secretary of Commerce Howard Lutnick and US Trade Representative Jamieson Greer.” These focused mainly on cars, but also on other goods categories.

EU makes far-reaching concessions

The latest agreement specifies the 27 July deal. On cars, the US will lower tariffs to 15 per cent retroactive to 1 August, once the EU initiates legislation to ease imports of a wide range of US products. The EU will now remove tariffs on all US industrial goods, cut barriers for agricultural imports, and commit to purchase $750 billion worth of US LNG, oil and nuclear products as well as $40 billion worth of chips by 2028. European companies also plan to invest an additional $600 billion in strategic US sectors. The deal is not legally binding and either side can revoke it.

Crucially, the 15 per cent tariff only applies to EU car exports to the US. Vehicles from the US will now enter the EU duty-free. So far, the EU levied ten per cent on US car imports. The US continues to charge 15 per cent on car parts from the EU and 25 per cent on light commercial vehicles, plus 50 per cent “global” tariffs on various steel and aluminium products.

The EU accepted the terms to avoid 30 per cent tariffs and the threat of a full-blown trade war. But Ursula von der Leyen stressed that this is not the end of the process: “We continue to engage with the US to agree more tariff reductions, to identify more areas of cooperation, and to create more economic growth potential.”

Mixed reactions from politics and industry

Germany’s Federal Ministry for Economic Affairs welcomed the retroactive cut as a step towards planning security and lower costs for companies. A spokesperson told Reuters it was important that the framework deal is now in place. “But tariffs remain a challenge for German carmakers and many mid-sized suppliers.”

The German Association of the Automotive Industry (VDA) called the move an important step. “Reliable framework conditions are crucial for our companies. The extra burdens had put the industry under severe pressure,” said VDA President Hildegard Müller. She added, however, that US tariffs on cars, parts, commercial vehicles and steel and aluminium products continue to pose serious challenges.

Müller urged the EU to push for further improvements in transatlantic trade conditions. “The agreed cooperation on regulation is an opportunity for both sides and should form the basis of a positive agenda.” She argued that the dispute underlined the need for a strong European economy: “The EU must create conditions that make Europe more attractive globally, and accelerate free trade and raw material agreements with more regions worldwide.”

Meanwhile, tariffs are not the only hurdle for German carmakers in the US EV market. The expiring US tax credit may boost sales records in Q3, but market prospects after that remain uncertain.

politico.eu, public-inspection.federalregister.gov, vda.de (in German)

This article was first published by Cora Werwitzke for electrive’s German edition.