EU-US trade deal under threat following steel tariffs expansion
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The EU-US trade deal, once promising economic stability, now faces collapse as expanded US steel tariffs hit European manufacturers hard.
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Sections of the Ariane rocket fuselage are seen inside the Airbus Defence and Space manufacturing plant in Getafe, central Spain, on March 31, 2025. (AP Photo/Bernat Armangue)
The trade agreement signed between the United States and the European Union in July was designed to de-escalate tensions by capping tariffs on most EU exports to the US at 15%.
However, that optimism has eroded as the Trump administration expanded 50% tariffs to include a wider range of steel and aluminum-containing products, affecting machinery, motors, pumps, and construction equipment.
What began as a 50% tariff on basic metals and components like screws has grown to encompass hundreds of products. These include motors, pumps, machine tools, and construction equipment, creating a complicated and costly environment for European exporters.
According to Bertram Kawlath, president of the German Mechanical Engineering Industry Association (VDMA), about 30% of US machinery imports from the EU are now subjected to these higher tariffs. This undermines the initial 15% cap and creates uncertainty for European exporters.
Real-world impact on European manufacturers
Manufacturers across Europe are already facing the consequences. Krone Group, a German producer of farming equipment and vehicles, has halted all exports to the US and redirected shipments to other markets. "We don't know if our customers are ready to pay 15% or 50% more," CEO Bernard Krone told the Wall Street Journal. The company has suspended US-destined production and sent 100 workers home.
John Deere, which exports 20% of its German plant output to the US, has resorted to structural cost discipline and closer collaboration with distributors to absorb the cost shock. Despite the rising pressure, the company has no plans to shift production out of Germany.
The tariff formula also complicates pricing. For example, a $1 million machine with 20% steel content would now be taxed 50% on $200,000 and 15% on the rest, equaling $220,000 in tariffs, or an effective rate of 22%.
Beyond financial strain, the Wall Street Journal reports that companies are facing mounting bureaucracy. Krone must now catalog the steel and aluminum content of all 15,000 parts used in its Big X forage harvester. Even suppliers outside the tariff list must report data such as source, price, and processing details, creating an administrative nightmare.
An unfavorable deal
The trade agreement sparked backlash across Europe from the start. French Prime Minister François Bayrou called it "a dark day," while German Chancellor Friedrich Merz warned of "considerable damage" to the German economy. Hungarian Prime Minister Viktor Orbán said, "Trump ate von der Leyen for breakfast." The European Parliament has raised alarms over the loss of digital autonomy and strategic independence, further complicating unanimous ratification.
Bernd Lange, head of the European Parliament's trade committee, emphasized that there is "no security and predictability" under the current terms. He questioned the fairness of zero tariffs on US motorbikes while European machinery is taxed up to 50%.
Additionally, the deal has reinforced, rather than resolved, the EU's economic dependencies on the US. With key infrastructure, technology, and security links tied to Washington, Europe faces increased exposure to US policy shifts. Additionally, threats to impose tariffs over EU digital tax rules show the ongoing risks of coercion.
According to the Wall Street Journal, the VDMA is urging the European Commission to push for a 15% tariff ceiling on machinery exports, in line with terms granted to autos, semiconductors, and pharmaceuticals.
Andrew Adair, a trade advisor at VDMA, noted the ironic consequences for American industry to the Wall Street Journal: manufacturers in the US rely on European machinery now subject to tariffs. During a factory visit by Vice President JD Vance, nearly none of the equipment was American-made, raising doubts about US manufacturing self-sufficiency.
Background: A €1.6 trillion trade relationship at risk
The US and EU maintain the world's largest bilateral trade and investment relationship, with trade in goods and services reaching approximately €1.6 trillion ($1.5 trillion) in 2024. This equates to daily trade flows of €4.2 billion, making each economy the other's largest trading partner.
Key EU exports include machinery and vehicles (39% of manufactured exports), chemicals (32%), and pharmaceuticals, while major US exports encompass energy products, agricultural goods, and technology services. The EU also committed to purchase $750 billion in US energy products over three years under the 2025 trade deal, a target viewed by experts as unfeasible.
