US reciprocal tariff deadline arrives

Following United States president Donald Trump’s announcement of the “Liberation Day” reciprocal tariffs on April 2, the US offered temporary tariff reprieves to give time for talks on tariff agreements for individual countries. Since postponing the tariff deadline to August 1, the US during June and July reached agreements on tariff rates and other trade conditions with the United Kingdom, Vietnam, Indonesia, the Philippines, Japan, the European Union and South Korea. In addition, yesterday the US unilaterally announced tariff rates for more than sixty countries. Notably, Canada saw its baseline hiked to 35 %, while the tariff level of Mexico will remain at 25 % for 90 days as negotiations continue. India was handed a 25 % tariff rate. New tariff agreements and unilateral tariff announcements by the US are expected in coming days. China and the US agreed this week to extend their tariff truce for 90 days (BOFIT Weekly 24/2025). President Trump has not yet confirmed the extension but is expected to do so.

No bilateral tariff agreement has actually been signed yet, and only snippets of details have been leaked to the public. Moreover, the new tariff arrangements are not trade agreements as such, but limited agreements on tariff levels, as well as commitments with regard to direct foreign investment and matters relating to international trade regulations. The tariff rates provide a starting point for details to be worked out in further negotiations. Even with regard to frameworks, however, it is apparent that the US and some counterparties have different views on what was agreed in the initial negotiations.

The EU and the US agreed on a general tariff of 15 % for EU goods imported to the US that does not include steel, aluminium or copper, which are subject to the US sectoral tariffs. Cars, however, are now subject to a 15 % baseline tariff instead the previous rate of 27.5 %. In addition, pharmaceuticals and semiconductors, for which the US has yet to set sector-specific rates, will be subject to the 15 % general tariff. According to the EU, even if the US later sets sector-specific rates for these product groups, the EU tariff rate will remain at 15 %. National security investigations are underway in the US in these sectors, and president Trump has implied that especially in the case of pharmaceuticals, a significantly higher tariff than 15 % is possible. In addition the agreement grants tariff exemptions to aircraft and their parts, equipment for manufacture of semiconductor devices, as well as certain chemicals, medicines, agricultural products and raw material inputs. Going forward, EU negotiators are expected to seek a wider range of tariff-exempt products and reductions in tariffs on steel and aluminium.

Under its agreement, the EU commits to eliminating sector-specific tariffs on US products and facilitating access of US producers to the EU market. Considerable discussion has arisen around the US announcement that the EU, as part of the agreement, has committed to investing $600 billion in the US over the coming years, the purchase $250 billion a year in energy products such as liquefied natural gas, oil and nuclear fuels, as well as buying significant quantities of weapons systems. The EU press release noted that companies from the EU member states have expressed interest to invest $600 billion in the United States and the EU intends to purchase energy products from the US at the stated amount. While the investments of EU-based firms in the US and their purchases will likely increase, the decision of the firms naturally rests with themselves. In addition, the amount of planned purchases of energy products seems unrealistic as total US exports of energy products last year only amounted to around $165 billion, with EU imports from the US in these product categories amounting to just $73 billion. Achieving the $250-billion goal for energy imports would require massive increases in both exports of US energy products and EU energy imports from the US.

The EU agreement seems to follow similar lines as those applied in the agreements with the UK, Japan and South Korea. Like in the EU agreement, both Japan and South Korea have accepted baseline tariffs of 15 %, and, according the US, have committed to making capital investments in the US. The UK, the first country to get a tariff agreement with the US, includes a 10 % baseline, as well as 25 % tariff level for steel and aluminium. The UK’s favourable treatment reflects the fact that the US runs a trade surplus with the UK. The US runs trade deficits many other major trading partners, including the EU, Japan and South Korea.

The sharp rise in tariffs will likely restrain global economic growth and international trade. Capital Economics estimates that the average tariff level encountered by the EU in exports to the US before Trump’s second terms was roughly 1 %. That now rises to 17.5 %. The Capital Economics estimate finds that this steep rise in tariffs lowers EU GDP by 0.2 % compared to a scenario where Trump’s second-term tariffs are not implemented. In March, the Bank of Finland published its own estimate of the impact of tariffs on the global economy. While the Bank of Finland calculation differs from the current situation in its assumptions, estimates of 15 % baseline tariff rate on the EU are shown to reduce GDP by slightly less than a half percent compared to a situation where no new tariffs are imposed. The negative impact next year declines slightly. In addition to the direct impact of tariffs, uncertainty related to trade policy is expected to weaken economic growth as investment growth slows. Once the new tariff regime becomes established, uncertainty is likely to decrease. However, uncertainty will persist as the uncertainty about the permanence of the tariff agreements persists, assuring that trade policy uncertainty will not vanish completely.