- Uncertainty remains about if and when a trade agreement between the EU and U.S. could be struck.
- The EU is preparing countermeasures in case of a no-deal scenario.
- Talks of a potential deal have however also been heating up this week.
Given the continued uncertainty around the possibility and timing of a trade agreement between the European Union and the United States, Brussels is bracing for a no-deal situation.
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A significant package of counter-tariffs that would target a variety of items was approved by lawmakers on Thursday, and there are allegedly ongoing talks about using the EU’s so-called “trade bazooka.”
With only a few days until August 1, when EU goods to the U.S. are scheduled to be subject to 30% tariffs, measures might begin immediately, and the EU is expected to react quickly.
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However, discussions of a possible agreement have also been intensifying this week. According to sources who spoke to CNBC, the current base-case scenario for a deal calls for a 15% tariff on EU imports to the United States. They said they are currently working out any potential exemptions.
Crucially, however, a lot hinges on U.S. President Donald Trump, who is renowned for making snap decisions and having last-minute changes of heart. As a result, there are no assurances on the nature of a possible deal.
There is a “50-50” likelihood of a deal between the U.S. and the EU, Trump told reporters on Friday.
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“I would say that we have a 50-50 chance, maybe less than that, but a 50-50 chance of making a deal with the EU,” Trump stated.
The European Commission merged two sets of proposed penalties this week into a single list that includes tariffs on 93 billion euros ($109 billion) worth of goods, ranging from apparel and machinery to food and drink items.
Earlier this week, a source told CNBC that tariffs, similar to those imposed by the United States, may reach 30%.
According to reports, EU member states approved the merged list on Thursday. The actions are scheduled to take effect a few days after the U.S. deadline of August 1.
In the absence of an agreement, Carsten Brzeski, global head of macro at ING, told CNBC on Friday that he anticipates tariff-level retaliation from the EU.
“In a non-deal scenario without another delay of US tariffs, I see the EU going for a tit-for-tat approach, ie imposing 30% tariffs on selected US goods, not yet all goods, like the well-known motorcycles, cars, clothing and alcohol,” he stated in an emailed response.
“Given that European countries are not fully aligned on how to react, I cannot see the EU going full in but rather trying to find a balance between showing that it reacts but without going beyond the US measures,” Brzeski stated.
Another alternative that has been explored extensively is the EU’s so-called anti-coercion tool, often known as a “trade bazooka.”
According to the European Commission, the deterrent measure would “be most successful if there is no need to use it.” However, in the event that a third nation does use coercion, “the instrument allows the Union to formally identify instances of economic coercion and to respond.”
Economic coercion, according to the bloc, is when non-EU nations meddle in regional affairs by threatening or enforcing regulations that affect investment and trade.
For instance, the ACI permits import and export limits as well as limitations on accessing the EU market, even if the European Commission states that communication and involvement would be a part of their reaction to such pressure.
According to Brzeski of ING, the EU may be able to impose export limits whether or not it uses its anti-coercion tool.
Although the ACI is regarded as the “nuclear option,” Alberto Rizzi, a policy fellow at the European Council on Foreign Relations, told CNBC on Friday that “in reality there is room for flexibility in its application, as long as the retaliatory measures remain proportionate to the harm of the coercion.”
Rizzi said it is unclear when the ACI could be activated, even though the climate in the EU is changing to be more hostile and supportive of “swift and substantial” response in a no-deal situation.
“Retaliation is seen as a negotiating tool by the EU, so the ACI will probably be activated only in a second phase if there is no response by the US after the tariff packages enters into force the EU would want to keep it as leverage rather than using it immediately,” he stated.
Silvia Amaro of CNBC contributed to this article.
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