Key Takeaways
- A potential US-EU trade framework is reportedly being discussed, centred on a baseline 10% tariff but with strategic carve-outs for spirits and aircraft, signalling a move towards pragmatic de-escalation.
- The deal appears designed to pre-empt a return to more aggressive protectionism, effectively attempting to “Trump-proof” the transatlantic trade relationship ahead of the US election.
- While the exemptions offer significant relief for sectors like European spirits (€25 billion in EU exports globally) and aerospace, the automotive industry (€41.8 billion in car exports to the US in 2023) remains highly exposed.
- The focus on exemptions and baselines suggests a broader strategic shift from open tariff wars to a more managed competition, potentially paving the way for coordinated industrial policy against third parties like China.
Reports of the US and EU exploring a new trade framework, centred on a baseline 10% tariff with notable exemptions for spirits and aircraft, suggest a significant, if cautious, recalibration of transatlantic economic strategy. This is not merely another chapter in the cyclical trade skirmishes; it represents a pragmatic attempt to establish a new status quo and insulate key industries from the political whims of future administrations. While no formal agreement has been confirmed, the structure of the rumoured deal provides a clear lens through which to analyse the shifting priorities in Brussels and Washington, highlighting a delicate balance between targeted protection and strategic de-escalation.
Anatomy of a Pragmatic Truce
The concept of a baseline 10% tariff is less an act of aggression and more a defensive manoeuvre. It is widely interpreted as an effort to pre-empt the potential reintroduction of sweeping, unilateral tariffs, a spectre raised by discussions in Washington of a universal import levy. By negotiating a “managed” tariff level now, the EU may be attempting to create a floor, ringfencing the relationship from more extreme protectionist impulses. According to sources cited by Reuters, European officials are growing increasingly resigned to this baseline as a necessary concession to secure stability.
The carve-outs, however, are where the real strategy lies. Excluding spirits and aircraft is a calculated decision to pacify two of the most contentious and economically sensitive areas of transatlantic trade.
- Spirits: The long-running dispute over steel and aluminium saw retaliatory tariffs slapped on products like American whiskey and, in turn, threats against European spirits. The US is the single largest export market for many European producers; Scotch Whisky exports to the US alone were valued at £1.27 billion in 2023. An exemption provides critical certainty for major players like Diageo and Pernod Ricard.
- Aircraft: The 17-year dispute over subsidies to Airbus and Boeing is the textbook example of a intractable trade conflict. While tariffs were suspended in 2021 for a five-year period, the underlying disagreement was never resolved. Excluding this sector from any new framework avoids reopening a wound that has already cost both sides billions and serves as a tacit acknowledgement that some battles are too damaging to refight.
Sectoral Crosscurrents and Asymmetric Exposure
A deal structured this way creates a clear divide between protected champions and exposed giants. While spirits and aerospace can breathe a sigh of relief, the residual 10% tariff would fall squarely on other major European export industries. The automotive sector, particularly German manufacturers, stands out as the most vulnerable.
In 2023, the EU exported over 1.2 million cars to the US, with a total value of €41.8 billion, according to the European Automobile Manufacturers’ Association (ACEA). A 10% tariff would represent a multi-billion euro headwind, forcing companies like Volkswagen, BMW, and Mercedes-Benz to either absorb the cost, compressing already tight margins, or pass it on to consumers, risking a loss of market share.
The table below outlines the divergent potential outcomes for key European sectors under this mooted framework.
| Sector | Key EU Players | Approx. US Exposure / Relevance | Potential Impact of Framework |
|---|---|---|---|
| Spirits & Beverages | Diageo, Pernod Ricard, Rémy Cointreau | US is top export market for Scotch & Cognac | Positive: Exemption removes major tariff risk and preserves access to a critical high-margin market. |
| Aerospace | Airbus, Safran, Rolls-Royce | Long-standing subsidy dispute; tariffs currently suspended | Positive: Carve-out prevents re-escalation of the damaging Airbus-Boeing subsidy war. |
| Automotive | Volkswagen Group, BMW, Mercedes-Benz | €41.8 billion in car exports to US (2023) | Negative: A 10% tariff would directly impact profitability and competitiveness, representing a significant headwind. |
| Machinery & Equipment | Siemens, Schneider Electric | Significant exports of industrial goods | Negative: Would face margin pressure from baseline tariff, impacting industrial exporters. |
From Trade War to Managed Competition
Beyond the immediate market implications, this potential deal hints at a deeper strategic pivot. The era of chaotic, tit-for-tat tariff wars may be giving way to a more sober, managed economic competition. By setting a baseline and defining “no-go” zones, the US and EU are effectively drawing new rules of engagement. This is less about free trade and more about creating a predictable environment for strategic industries.
This approach also serves a geopolitical purpose. Stabilising the transatlantic trade front allows both powers to dedicate more political and economic capital to confronting challenges posed by China. A unified Western economic bloc, even one with low-level internal tariffs, is a far more formidable counterweight than two entities bogged down in disputes over spirits and aircraft subsidies.
Therefore, positioning for this new reality requires looking beyond the first-order effects. A pair trade of long European beverage and aerospace versus short German automakers is the obvious interpretation. However, a more speculative hypothesis is that this is merely the prelude to a more formal, coordinated industrial policy. The next battle will not be fought with tariffs, but with subsidies, regulations, and standards in strategic sectors like semiconductors, artificial intelligence, and green technology. The real prize is not avoiding a 10% tariff on cars, but aligning on who sets the rules for the industries of the future.
References
ACEA. (2024). EU-US trade in motor vehicles. European Automobile Manufacturers’ Association. Retrieved from https://www.acea.auto/figure/eu-us-trade-in-motor-vehicles/
Allen, M., & VandeHei, J. (2024, April 10). Behind the Curtain: Trump’s 10% tariff trial balloon. Axios. Retrieved from https://www.axios.com/2024/04/10/trump-tariffs-trade-policy
Blenkinsop, P. (2024, June 19). EU increasingly resigned to 10% baseline tariff in US trade talks, European sources say. Reuters. Retrieved from https://www.reuters.com/business/autos-transportation/eu-increasingly-resigned-10-baseline-tariff-us-trade-talks-european-sources-say-2024-06-19/
Moens, B., & Paun, A. (2024, February 13). How Europe is trying to Trump-proof its trade relationship with the US. Politico Europe. Retrieved from https://www.politico.eu/article/us-eu-tariff-deal-donald-trump-trade-agreement/
Scotch Whisky Association. (2024, February 8). Scotch Whisky exports hold firm in global markets returning to growth. Retrieved from https://www.scotch-whisky.org.uk/newsroom/scotch-whisky-exports-hold-firm-in-global-markets-returning-to-growth/
U.S. Trade Representative. (2021, June 15). USTR Statement on a Cooperative Framework for Large Civil Aircraft. Retrieved from https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/june/ustr-statement-cooperative-framework-large-civil-aircraft
FinFluentialx. (2024, September 10). [Post about US offering EU a 10% tariff deal with exclusions for spirits and aircraft]. Retrieved from https://x.com/FinFluentialx/status/1939081886200119494
