Tariffs or not? How EU is dealing with US 'dealmaking'

When the trade ministers of the so-called Group of Seven, or G7, nations met in Paris this week, they were supposed to be talking about the most pressing issues facing global trade, including critical minerals and the impact of the Iran war.

Instead, the meeting was overshadowed by threats made by US President Donald Trump to impose a 25% tariff on imports of European vehicles.

Trump made the threats earlier this week and has justified them by arguing that the European Union — members France, Germany and Italy also belong to the G7 — hasn't fulfilled its obligations under a previous US-EU tariff deal known as the Turnberry Agreement.

The deal was struck at Trump's Turnberry golf course in Scotland and both sides agreed the US would only impose a maximum tariff of 15% on EU goods, while the EU would eliminate all tariffs on US industrial products. The Europeans reject the idea that they haven't kept up their end of the bargain, although they have yet to ratify the agreement in the European Parliament.

Before the G7 summit, the EU Commissioner for Trade and Economic Security, Maros Sefcovic, spoke with US Trade Representative, Jamieson Greer, in Paris.

Sefcovic later said that he and Greer had "clearly concluded that it's important to respect the deal from Turnberry from both sides."

That means that the EU must reduce tariffs on US exports as agreed and the US should return to the promised 15% tariff, Sefcovic said.

Katherina Reiche, Germany's minister for economic affairs and energy, also spoke with her American counterparts in Paris.

"It is true we are making progress in implementing the compromise we reached on a tariff agreement," Reiche told DW. She added that the issue of auto exports is a central one for Germany that she hoped would be resolved via ongoing talks.

Europe tries to sway Trump on vehicle tariffs

To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video

Walking back threats

In fact, on Friday, Trump did pull back somewhat on the threat of 25% tariffs. He said he would be prepared to wait until July 4 to decide whether to impose higher tariffs on the EU.

After a phone call with European Commission President Ursula von der Leyen, Trump said he agreed to give her until "our Country's 250th Birthday or, unfortunately, their Tariffs would immediately jump to much higher levels," the BBC reported.

Complicating matters further is the fact that just hours before Trump agreed to wait until July 4, a US court ruled against other Trump tariffs, which would open the door for further legal pushback.

Should higher tariffs actually be implemented, the German car industry would be particularly hard hit, an analysis by the Kiel Institute for the World Economy found.

The US is the second-most important market for German auto manufacturers after the EU. Kiel Institute researchers said the kinds of tariffs Trump was threatening would result in a short-term loss of almost €15 billion ($17.5 billion) to the sector. In the longer term, the figure would go up to €30 billion. All that would deal a major blow to Germany's currently weaker economic performance, the institute's analysis concluded.

Was it Friedrich Merz' fault?

Because German automakers would be particularly affected by the threatened tariffs, observers interpreted Trump's comments as retaliation for remarks made by German Chancellor Friedrich Merz about the Iran war.

In a talk to students in the central German town of Marsberg, Merz said that the US had been "humiliated" by Iran's leadership and outwitted at the negotiating table. Shortly after that, the US government announced it would be withdrawing as many as 5,000 US troops from Germany and Trump made the tariff threats.

But Trump may also have been considering the damage he could do to the Italian auto industry, Penny Naas, an expert on trade with the German Marshall Fund think tank, pointed out. Italy's Prime Minister Giorgia Meloni has also recently been more critical of Trump, Naas told DW, referring to Meloni's comments about Trump and the Pope as well as the Iran war.

Above all though, the US may genuinely be frustrated about the implementation of the Turnberry Agreement. "There have been delays, there have been pauses in the process," Naas said. "I think the US is just laying down a card that they'd like to see Europe move a little bit faster."

US troop withdrawal: A turning point for Europe?

To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video

It is true that the European Parliament has delayed work on ratifying the Turnberry Agreement twice already — first, because of Trump's threat to invade Greenland; and then because of the US Supreme Court's ruling that some of Trump's tariffs were illegal.

The US' urgent message seems to have reached Europe this week. During the G7 summit's closing press conference, host French Trade Minister Nicolas Forissier said he had understood the US threat of tariffs as a call to accelerate the implementation of the Turnberry Agreement.

EU parliamentarians are now demanding safeguards should the US be the one to fail to comply with the agreement. When the Turnberry deal was made, the EU had emphasized stability and predictability in relations with the US under Trump.

But Naas said predictability is unlikely. She points out that tariffs — or at least, the threat of them — are President's Trump's favorite economic dealmaking tool.

This story was orginally published in German.