- Despite recent challenges on bond markets and stock markets, President Trump recently declared that he would impose a 50% rate on all EU imports. He said These discussions with the EU “went nowhere”. In addition, when he was asked what agreement he was looking for with the EU, he said that he “did not look for an agreement” and that “we concluded the agreement. It’s 50%”. This suggests that the EU will face a high obstacle to dissuade the president from imposing a new and very important rate. On the other hand, the American Treasury Secretary, Bessent, said that “it is in response to the EU rhythm. I hope this would turn on a fire under the EU. ” His comment suggests that there could be a base for an agreement.
However, a few days after the initial proposal, the United States declared that the The prices will be postponed Until July 9, while the two parties engage in talks. There are probably two possible explanations for delay. An explanation is that the bond market reacted negatively at the announcement of an intention to impose the 50% tariff on June 1. The other is that President Trump has had a productive appeal with the chairman of the EU Ursula von der Leyen commission. The postponement has satisfied bond investors and in stocks.
However, many investors make short -term bets rather than strategic bets. After all, nothing is certain yet. Meanwhile, the United States retains a tariff of 10% on all imports from the EU as well as higher prices on specific products. The EU remains ready to impose prices for punitive reprisals on imports of specific products from the United States if an agreement cannot be concluded.
The importance of this question stems from the Solid volume of trade This is currently taking place between the United States and the EU. In 2024, the United States imported $ 606 billion in EU, more than any individual country. The largest category of imports was pharmaceutical products, representing $ 127 billion in imports. This is followed by cars at 45 billion US dollars. Meanwhile, the United States has exported $ 370 billion in EU. This is the gap between these figures which concerns the American administration, although bilateral commercial imbalances are not important from an economic perspective.
As the talks are taking place, it is not clear what the United States is looking for EU. The United States is not looking for low prices because it already exists. The EU average price on imports from the United States is only 2.7%. On the contrary, the United States has reported A desire to treat non-pricing barriers, the manipulation of currencies and the size of the EU trade surplus with the United States. With regard to non-tariff obstacles, the United States indicates that value-added taxes (VAT) at high value in Europe. However, these are not non -tariff obstacles because they also apply to imported goods and produced at the national level. In addition, there is little chance that governments in Europe will agree to reduce their tank as part of a trade agreement. The United States has also pointed out what it claims to be discriminatory regulations.
Regarding the handling of currencies, it does not take place. The exchange rate in dollar-European is determined on the free market but is influenced by the monetary policies of the Federal Reserve and the European Central Bank (BCE). The EU cannot engage in a specific ECB policy in its commercial talks with the United States, because the ECB is independent. Finally, the commercial imbalance is determined on the free market. The United States could ask the EU to commit to stimulating imports from the United States, but the EU has no authority in this area other than encouraging members of members to stimulate the purchase of goods from the United States-perhaps defense goods. As such, it is difficult to see how an agreement that meets American requests can be answered. On the other hand, a modest agreement is not out of the question, especially if the United States wants to avoid uncertainty in the financial markets.
Recall that, on April 2, the United States proposed a tariff of 20% on all imports of the EU, but then postponed this price until July 9. Then the United States proposed a 50% rate to start on June 1. This has now been postponed until July 9. It is likely that major strategic decisions are suspended until there is greater clarity.
- The American Court of International Trade, a relatively obscure but obviously important panel, held that almost all the prices imposed by President Trump since the start of his mandate are illegal. Does this mean that the trade war is over? Barely. The administration will appeal to the decision while a court of appeal allowed the prices to remain in place during the appeal process. In addition, even if the decision is finally confirmed, the administration has several options available to implement prices. However, investors have reacted positively, increasing the prices of equities. Let’s look at the details.
The US administration had turned to the International Emergency Economic Powers (IEEPA) to quickly implement high prices. The IEEPA, which was adopted in 1977, allows a president to quickly implement economic restrictions on other countries during a national emergency. The law does not explicitly provide prices. The law was used for the last time by President Biden to impose sanctions on Russia following his invasion of Ukraine.
In this case, the Trump administration had determined that there is a national emergency requiring rapid action resulting from the great American trade deficit. Although the law has never been used before to impose prices, the administration argued that prices on a wide range of countries were necessary to reduce the trade deficit.
THE Court of three judgesGovernment unanimously, said that “global tariff orders and reprisals exceed any authority granted to the president to regulate importation by means of prices.” He added that “the disputed tariff orders will be canceled and that their operation has definitively prohibited”. In other words, unless this decision is overthrown by a higher court, companies will be able to obtain reimbursements for the rates already paid. In addition, existing prices will disappear – at least until the administration can find a different way to impose prices. In addition, the decision applies to radical prices imposed on China, Mexico, Canada and many other countries. However, it does not apply to prices imposed on specific products such as aluminum, steel and cars, because these were based on laws other than IEPA.
The court explicitly rejected the argument concerning a national emergency, noting that the United States has had persistent trade deficits for decades without any clear damage to the economy. Indeed, the United States has experienced strong economic growth with trade deficits while several surplus countries, such as Japan and Germany, have experienced slow economic growth. In addition, the court said That the law requires that, to use the law, the administration must face “an unusual and extraordinary threat”. He said that neither the trade deficit nor the influx of fentanyl meet this standard. The administration accused the court of having exceeded its authority and of being “activist”.
What happens next? The administration promised to appeal the decision. The next step is the American Court of Appeal in the Columbia District. After that, the United States Supreme Court, which has often been referred to the presidents concerning the determination of national emergencies. On the other hand, the court could note that the Constitution provides the congress with the power to impose prices. If the administration loses on appeal, there are several parts of the law governing the trade in which it can turn to impose prices.
By making his decision, The court noted This article 122 of the Trade Act allows the president to impose temporary prices to combat “balance of balance of payments from the United States important and serious”. This power is limited to prices of up to 15% and only for 150 days, after which only the congress can decide to continue the prices. This law may not appeal to the administration because of its limits. In addition, the United States has no balance of payments, which is different from a trade deficit.
Aluminum and steel prices have been implemented on the basis of article 232 of the Trade Act. This gives the president the power to protect specific industries that are threatened and important for national security. Imposing such prices requires a conclusion which follows an investigation. Thus, it is a slow process. However, the administration has already launched such surveys concerning pharmaceutical products, aerospace and other industries.
Another possibility is that the administration turns to article 338 of the prices law of 1930. This law has never been used. However, this allows the president to impose prices of up to 50% if a foreign country is engaged in discriminatory behavior against the United States. This may include “any burden, exction, unreasonable limitation”. In particular, the president last week had proposed a rate of 50% on the European Union, saying that the EU had treated the United States unfairly.
Finally, there is also article 301 of the Trade Act. This allows the administration to impose rates and non -pricing obstacles against the countries judged which have engaged in “practices which are deemed unreasonable, unjustifiable or discriminatory and burden or restrict American trade”. However, it can be a long process that requires an investigation. There are currently several 301 surveys in progress. Article 301 was used by the first Trump administration to impose a wide range of tariffs in China in 2018.
Thus, as is obvious, the administration has several alternative avenues to impose prices. In addition, the administration could ask the congress to modify the law to give the president a greater discretionary power. It is possible but unlikely. Such a change in law would require a great majority in the Senate, which will not be coming.
The reaction of the financial market to the court’s decision was largely favorable. The prices of equity initially took expectations that the court’s decision will render less and the rates lower. Investors may also bet that other countries will adopt a harder position in negotiations with the United States. For example, will the EU now make significant concessions if the threat of American prices is temporarily deleted? It is not clear. In addition, the recent scheme of threat or imposing high price, monitoring of reports and inversions, would not work so well if the administration should follow the procedures integrated into laws other than the ieepa.