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In another busy period for international trade discussions, the European Parliament voted to lower tariffs on U.S. products as part of a trade agreement struck last year, President Donald Trump said he would “rather not have” the updated free trade agreement between the U.S., Canada, and Mexico that his first administration negotiated, and French President Emmanuel Macron pledged to maintain a digital services tax despite pressure from the Trump administration.
European Parliament approval upholds key parts of U.S. trade deal
Following through on a key aspect of last year’s agreement with the Trump administration, the European Parliament last week lowered tariffs on a number of U.S. products after months of debate and political opposition due to U.S. threats to invade Greenland earlier this year. Legislation passed by the trans-European Union legislature on June 16 was necessary for the EU to follow through on the deal that also lowered U.S. tariffs on EU imports.
The legislation eliminates tariffs on U.S. industrial goods and provides preferential market access to U.S. seafood and agricultural products. However, the European Commission can reinstate previous tariffs as soon as Dec. 31, 2026, if the U.S. does not lower tariffs on steel and aluminum products from EU countries to 15%. The U.S. currently tariffs raw aluminum and steel imports at 50% and products made with imported steel or aluminum at 25%, with newly announced 15% rates for certain agricultural equipment and HVAC units.
If the U.S. lowers tariffs and maintains the current 15% baseline rate for most EU products, then the European legislation will remain in place through the end of 2029, with a mandatory review period beginning on June 1, 2029.
Grant Thornton insight:
The European legislation helps maintain short-term stability on trans-Atlantic trade, but the Trump administration has shown limited budge on steel and aluminum tariffs. The June 1 presidential proclamation lowering the rates on agricultural equipment and air conditioners, and perhaps more importantly, lowering the domestic manufacturing threshold under which a derivative product can qualify for a lower rate under current U.S. steel and aluminum tariffs may provide some hope for European negotiators. However, steel and aluminum tariffs are particularly sensitive for the Trump administration, which appears to view them as essential to reshoring manufacturing activity.
Trump would ‘rather not have the USMCA’
The president told reporters that if he had his way, he would leave the U.S.-Mexico-Canada Agreement (USMCA), the update to the North American Free Trade Agreement (NAFTA) that his first administration negotiated.
“I’m thinking about maybe we won’t be able to make a deal. I would rather not have the USMCA.,” Trump told reporters on June 17. “I would prefer not having an agreement, but I'm open to doing it,” he added.
The USMCA has an unusual review and sunset clause, in which it enters an annual review and possible changes by all three countries if they do not agree to maintain the current agreement by July 1. The Trump administration has suggested a number of changes, including potentially ending the continental free trade agreement in favor of new bilateral agreements to be negotiated separately with Canada and Mexico, likely resulting in higher tariffs on imports from both countries.
According to an official estimate, the USMCA governs over $2 trillion worth of trade volume annually, meaning changes could have a broad impact on businesses, particularly in the manufacturing and agricultural sectors.
Grant Thornton insight:
The USMCA contains a six-month withdrawal option for any signatory member, which the administration may increasingly threaten if this summer’s talks do not meet the White House’s expectations.
If, as seems most likely, the U.S. does not officially withdraw but the three countries do not agree on a continuation of the status quo or another long-term arrangement, then the free trade agreement will be subject to potential changes on a yearly basis until a full sunset scheduled for 2036. Both Canada and Mexico are likely to be pressured into new concessions to the U.S. in exchange for tariff reductions during these talks.
Either withdrawal or significant changes to the agreement would increase uncertainty and likely costs for U.S. businesses reliant on supply chains or sales to either country and could dramatically change operational margins for subsidiaries in either country. Businesses reliant on supply chains or cross-border operations should plan for the possibility of changes to, or the end of, the USMCA.
Trump threatens 100% tariff on French wine over DST
In a revisit of one of the original trade wars from Trump’s first administration, the president last week promised a 100% tariff on French wine if the country does not exempt U.S. companies from a 3% digital services tax (DST), which largely falls on U.S. tech giants.
“I asked him not to charge American companies, and if they do, I have no choice but to charge a 100% tariff on all champagnes and all wines coming out of France,” Trump told the New York Post, prior to meetings with French President Emmanuel Macron at the G7 meeting hosted by France.
Macron said he would not repeal his country’s DST, which the French legislature has considered increasing from 3% to 6% — or even to as high as 15%.
“No, because that is not how it works,” the French president said in a televised interview June 15. He added that, “tariffs don’t do anyone any good, especially tariffs between G7 countries.”
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