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The United States and the European Union have reached a preliminary trade deal to avoid a 30% U.S. tariff on imported goods from the EU that President Donald Trump threatened would go into effect on Aug. 1. Trump had argued that higher tariffs were needed because EU tariffs and nontariff policies “cause the large and unsustainable trade deficits” between the U.S. and the EU, but economists disputed that statement.
EU tariffs were already generally low, economists told us, and other economic factors – rather than specific trade policies or regulations – contribute more to the yearslong U.S.-EU trade imbalance.
Under the new agreement, the U.S. will impose a 15% tariff on most imports from the 27 EU nations, Trump said on July 27.
“One reason the US runs a large bilateral trade deficit with Europe is that we have a large multilateral deficit overall,” Robert C. Johnson, an associate professor of economics at the University of Notre Dame, told us. The multilateral deficit refers to the total U.S. deficit in goods and services with all trading partners. Johnson said this reflects macroeconomic forces related to Americans investing more money in the U.S. economy than they save, leading them to “borrow from abroad” to account for the difference.
The economic experts also said that increasing the tariff rate on imports of EU goods is not guaranteed to reduce the existing trade deficit.
Trump’s Reasoning
Trump announced that a tentative trade deal had been reached on July 27, after he met with Ursula von der Leyen, the president of the European Commission, at one of his golf clubs in Scotland. In addition to the 15% tariff on EU goods, he said that EU representatives agreed to purchase $750 billion worth of U.S. energy, invest $600 billion more into the U.S. economy and buy an unspecified amount of American-made military equipment.
Trump also said the deal would allow imports of U.S. goods into those European nations at a 0% tariff rate. But in a July 28 press conference, Maroš Šefčovič, the European commissioner for trade and economic security, said “both sides will apply a zero tariff rate” on a “significant list of goods” — not all products. Reuters reported that list of goods included aircraft and parts, some generic drugs and chemicals, natural resources, and some agricultural products.
The complete terms have not been revealed, and the trade agreement still needs to be approved by all the individual EU countries.
Trump had threatened weeks ago – in a July 11 letter to von der Leyen – to implement a 30% baseline tariff on U.S. imports of EU goods if no deal was reached by the start of August.
“Please understand that these Tariffs are necessary to correct the many years of European Union Tariff, and Non-Tariff, Policies and Trade Barriers, which cause the large and unsustainable Trade Deficits against the United States,” the letter said. “This Deficit is a major threat to our economy and, indeed, our National Security!”
In 2024, the U.S. exported $666.7 billion in goods and services to the EU, while it imported more than $815.1 billion — producing a trade deficit of roughly $148.4 billion. In raw numbers, it was the largest deficit the U.S. has had with the EU, according to Bureau of Economic Analysis data going back to 1999. (The U.S. regularly has a trade surplus in services with the EU but a larger deficit in goods. Trump usually cites only the deficit in goods, ignoring the surplus in services.)
In his letter to von der Leyen, Trump had argued that even a 30% tariff “is far less than what is needed to eliminate the Trade Deficit disparity we have with the EU.”
But as we said, the experts we asked said that EU tariffs and nontariff policies are not the main factor causing the annual trade deficit.
Other Reasons for the Deficit
To support the president’s claim about the cause of the trade deficit, a White House official directed us to a 2021 report from the U.S. Trade Representative that identified certain tariffs and nontariff barriers that the USTR said keep U.S. exporters and investors from “entering, maintaining, or expanding their presence in certain sectors of the EU market.”
But Gene M. Grossman, a professor of economics and international affairs at Princeton University, called it “absurd” to say that EU tariffs are behind the deficit since “the average tariff on US exports to the EU is low and very similar to the average tariff on EU imports to the US.” In an email, he told us that the EU does have “moderately high tariffs on a few goods,” such as automobiles and agricultural products. But “so does the US,” he said.
In a Q&A published in February, the European Commission said “considering the actual trade in goods between the EU and US, in practice the average tariff rate on both sides is approximately 1%.” Bruegel, an economics-focused think tank in Brussels, similarly reported in April that, as of 2024, the average U.S. tariff rate on imports from the EU was 1.47%, while it was 1.35% on EU imports from the U.S.
Johnson, the Notre Dame professor, said U.S. and EU tariffs have been low because of a series of negotiations occurring over decades. “We lowered our tariffs in exchange for reductions by Europe, so tariff reductions were broadly balanced overall (though not sector-by-sector),” he told us.
As for nontariff barriers, which are policies designed to limit imports in favor of domestic industries or to protect domestic interests, an analysis published in April by researchers with the Federal Reserve Bank of St. Louis did find that the EU uses nontariff measures to a greater degree than the U.S.
The authors said the EU “has a higher prevalence of NTMs than the U.S. in 13 out of 15 broad sectoral groups,” such as food-related products, footwear, and machinery and electrical equipment, “suggesting a more extensive use of regulatory measures.”
But those EU policies are not “explicitly targeted at the U.S.” and apply to “all suppliers to the EU market,” said Johnson. He said that the trade deficits the U.S. has with “most of our major trade partners” are “principally driven by macroeconomic forces.”
“For a given value of the macroeconomic trade deficit, individual deficits would be driven by various forces — comparative advantage, differences in geography and trade costs, the structure of global production chains, and trade policy.”
While trade policy is among the contributing factors, “it is not at the top in my view,” said Johnson, who also noted that “deficits with some of our largest partners” are to be expected because the U.S. imports more than it exports overall.
In a February report about U.S. and EU trade relations, the Congressional Research Service, the nonpartisan research arm of Congress, also said that “many economists attribute the U.S. goods trade deficit more to macroeconomic variables, such as a relatively low savings rate and relatively high consumer spending in the United States compared to other economies, than trade practices.”
Will Increasing Tariffs Balance Trade?
During Trump’s announcement of the deal, von der Leyen said that the agreement was about “fairness” and “rebalancing” trade. “We have a surplus, the United States has a deficit, and we have to rebalance it,” she said.
Yet the experts also told us that raising tariffs on imported EU goods may or may not result in balanced trade as Trump wishes.
“An increase in US tariffs on the EU could decrease the trade deficit with the EU, by diverting US import demand to alternative trade partners,” Johnson said. As an example, he said that when the U.S. raised tariffs on China in the past decade, imports from Mexico increased as a result.
But that could add to the trade deficits that the U.S. has with other countries.
Meanwhile, Grossman said that “historically, tariffs have been associated with, on average, a small reduction in trade deficits, but not consistently.” He added that whether trade between the U.S. and the EU becomes more balanced depends on circumstances such as whether the tariffs are temporary or long term.
Johnson said that Trump is putting too much emphasis on the deficit with individual trading partners anyway.
“In general, one should not read too much into bilateral trade deficits; even with balanced trade overall, we would likely run deficits with some countries and surpluses with others,” he said. “There is no reason why trade ought to be balanced at the bilateral level.”
Tarek Alexander Hassan, a professor of economics at Boston University, has also written that a trade deficit is far from being the “national emergency” that the Trump administration said it is.
“A trade deficit sounds bad, but it is neither good nor bad,” he wrote in an April 8 opinion post, after Trump announced a range of new tariffs earlier that month. “It doesn’t mean the US is losing money. It simply means foreigners are sending the US more goods than the US is sending them.”
Last year, the U.S. goods and services deficit was $903.5 billion.
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