EU-US trade deal – symmetric shock, asymmetric consequences

• EU-US trade deal – symmetric shock, asymmetric consequences | POSITIVE

• At the end of last week, the leaders of the United States (the largest economy in the world, with a nominal GDP of $30 trillion) and of the European Union signalled a trade deal following weeks of intensive negotiations.
• On the one hand, goods imported by the USA from the European Union will now be subject to a 15% customs tariff—a level higher than the 10% announced at the beginning of April for all imports of goods into the U.S. market.
• By incorporating this information, the annual average tariff applied by the USA on imported goods will reach 18.2%, the highest level since 1934, according to Budget Lab estimates, reflected in the right-hand chart.
• The U.S. is the primary export market for the EU goods, with a share of 20.6% (€532.8 billion) in 2024, according to Eurostat data.
• The value of EU goods exports to the USA rose at an average annual rate of 4.5% between 2002 and 2024. In the same interval the EU imports of U.S. goods grew at a slower pace of just 4.1% per year, reaching €335 billion, as reflected on the second chart on the right-side.
• As a result, between 2002 and 2024, the European Union recorded a trade surplus in goods with the U.S., which expanded at an average annual rate of 5.2%, reaching a record €197.8 billion last year.
• A notable increase was seen in the trade surplus for machinery and equipment, which rose at an average annual rate of 6.8% between 2002 and 2024, reaching €101.7 billion. This was due to EU exports increasing at an average annual rate of 3.6% (to €207.8 billion), outpacing imports from the U.S., which rose by only 1.8% annually (to €106.1 billion).
• In the chemical industry trade, the EU’s surplus with the U.S. increased at an average annual rate of 9.1% between 2002 and 2024, reaching €91.7 billion. EU exports rose by 6.9% annually (to €170.1 billion), while imports from the U.S. grew at a slower rate of 5.2% per year (to €78.4 billion) over the same period.
• On the other hand, in the category of mineral fuels/lubricants/related materials, the EU has posted a trade deficit with the U.S. since 2011. This deficit has widened since the outbreak of the Ukraine crisis: €84.6 billion in 2022, €69.9 billion in 2023, and €64.5 billion in 2024.
• It is important to highlight that the implementation of this 15% tariff, combined with the appreciation of the euro against the U.S. dollar since the beginning of the year, will have an adverse impact on EU goods exports and on the contribution of net external demand to the annual pace of economic activity in the EU in the coming quarters.
• On the other hand, the European Union will import energy sector goods from the U.S. worth $750 billion and will invest $600 billion in the United States by 2028, according to a statement from the White House.
• This seems like a highly ambitious plan, considering Eurostat data showing that in 2024 the European Union imported crude oil and natural gas from the U.S. worth only €60.9 billion in total (€42.1 billion and €18.8 billion, respectively).
• Our view: recent developments in the global economy and economic policy signals from the world’s major economic blocs indicate that the European Union needs new measures (structural reforms) to improve international competitiveness and boost economic convergence among member states. The EU – US trade deal is another symmetric shock for the EU, but with asymmetric consequences for the member states. We expect the EU companies to increase their investments in the CEE in the coming quarters, in order to counterbalance the impact of higher tariffs in the US and of the appreciation of the EUR. Romania may benefit from the recent international developments (including the EU-USA deal), and may join the club of connector countries (Vietnam, Indonesia, Poland, Mexico and Morocco). This scenario is supported by the prospects for the completion of the ongoing infrastructure projects, the cheap labour force, and the acceleration of the structural reforms (as signalled by the Administration). Furthermore, the recently launched EU programmes (including Competitiveness Compass) and the Agenda of the German Administration would have a positive impact for investments in the Romanian economy (especially in the industry). In fact, the recent developments in Germany point to the entry of the EU industry into a new cycle of growth. The annual pace of industrial production returned to positive territory in Germany in May, following 23 months of contraction, as can be noticed on the third chart on the right-side. In our recently revised macroeconomic scenario the gross fixed capital formation in Romania would increase by 5.5% Y/Y in 2025 and 6.3% Y/Y in 2026, and 2027 | POSITIVE