Trump and Juncker agree to work on 'zero tariffs' deal to avoid trade war
US President Donald Trump and European Commission counterpart Jean-Claude Juncker agreed to work towards “zero tariffs” in new deal struck on Wednesday in the White House.
Trump and Juncker agreed that Europe would purchase more soy and liquefied natural gas from its the US and promised to work together to eliminate the tariffs on industrial goods. The tariffs that are already in place from both sides, such as on steel, will be revised and could be withdrawn soon.
“We are close partners and allies, not enemies. We must work together,” said Juncker at a White House briefing overnight. “We represent half of the world’s trade. We have to work together. We have to talk to each other, not at one another, and that’s what we do today.”
After the meeting President Trump said that there was a “new phase” in relations and it was a “big day for free and fair trade”.
"We agreed today, first of all, to work together toward zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods," Trump said. "We will not go against the spirit of this agreement, unless either party terminates the negotiation. We're starting the negotiation right now but we know very much where it's going.”
However, Trump exempted cars from the agreement and could still consider putting 25% tariffs on nearly $200bn car imports from Europe since the issue was not dealt with during the meeting. The block warned the US before the meeting they would respond with similar duties.
However, on Thursday morning, shares of European carmakers such as BMW, Volkswagen, Fiat Chrysler Automobiles and Daimler jumped in response to the deal.
US markets also welcomed the deal, with the S&P 500 closing Wednesday's session at its highest level since late January.
"This was best outcome that could have been expected from the meeting," said market analyst Jasper Lawler at London Capital Group. "The market was cautious approaching the summit and even further talks were looking doubtful. Yet the EU cutting tariffs and promising to buy 'a lot more' soybeans has been sufficient to avert a trade war, for now. Who knew Mr Juncker could be so quick to make a trade pact when he wants to."
Michael Hewson at CMC Markets added a little caution. "There was no mention of removing the existing retaliatory tariffs imposed in the last few months, and while the pledges to work towards zero tariffs is certainly a noble goal, it is likely to face significant obstacles from some national governments in Europe, which means it’s unlikely to ever happen," he said. "To get an idea of the obstacles you only need to look at the failure of TTIP.
But on the plus side, Hewson said the prospect of 25% tariffs on European cars has receded for now, along with EU retaliation, "which probably helps explain the positive market reaction".