Trade Agreement between the European Union and the United States

USA–EU Framework Agreement of 2025: Technical Summary and Implications for Trade Policy

In July 2025, the world's two largest economies — the United States and the European Union announced a bilateral trade framework agreement aimed at addressing a range of tariff and trade issues.

The agreement is not legally binding: The political understanding of July 2025 has the nature of a framework agreement and requires further negotiations to be fully implemented. In particular, the agreement requires approval from the European Parliament before it can become fully binding. Differences remain regarding the expansion of the scope of US tariffs on steel and aluminum and European regulations on digital and environmental matters.

Background of USA–EU Trade Relations

The United States and the EU are mutually the main trade and investment partners. Traditionally, they have cooperated to support an open, rules-based global trading system. As WTO members, trade is typically conducted on a Most Favored Nation (MFN) basis, except for preferential agreements covering "substantially all trade" between the parties.

Despite several attempts, there is no comprehensive USA–EU free trade agreement. Over time, various administrations and Congress have expressed concerns about EU trade policies perceived as restrictive or discriminatory toward American companies.

USA–EU Joint Statement

On August 21, 2025, the White House and the European Commission, responsible for the EU's trade policy, issued a joint statement on the contents of the agreement, named:

“Framework on an Agreement on Reciprocal, Fair, and Balanced Trade”

The goal is to create a first step toward a broader agreement, which could expand over time to cover additional sectors, improve market access, and strengthen trade and investment flows.

1. Tariffs

EUROPEAN UNION Commitments

The EU plans to:

Eliminate tariffs on all American industrial goods.
Provide preferential access to certain American products in the fisheries sector and certain categories of "non-sensitive" agricultural products, mainly through the opening of tariff-rate quotas (TRQ).

A second European proposal aims to extend duty-free treatment for American lobster, already granted in a mini USA–EU agreement during the first Trump Administration.

The European proposals stipulate that tariff reductions can be suspended if the United States "does not apply" or "undermines the objectives" of the agreement.

Final approval requires votes from the European Parliament and the Council of the EU.

United States Commitments

The United States commits to applying to EU products the highest tariff between:

the MFN rate;
a tariff of 15%, which incorporates the MFN tariff and a new "reciprocal" tariff.

The 15% is higher than the 10% threshold provided by the "reciprocal" tariff action, but lower than other proposed rates for the EU (e.g., 30%). This was implemented by Executive Order 14236 (July 31, 2025).

The United States will apply from September 1 the MFN rate only on:

"non-available" natural resources (e.g., cork);
aircraft and parts;
generic pharmaceuticals and ingredients;
chemical precursors;

these are among the main EU export flows.

The parties will consider further exclusions from the 15% rate.

A subsequent Executive Order 14346 (September 4, 2025) allows the Trump Administration to implement the necessary tariff modifications to apply the framework agreements, including the one with the EU

2. Section 232 Tariffs (National Security)

The agreement also addresses products subject to or potentially subject to tariffs under Section 232

The United States states that:

will reduce tariffs on EU automotive products in the same month the EU formally presents the legislative proposal to implement its tariff commitments;

This will result in:

the US tariff on EU vehicles from 27.5% → 15%;
the EU tariff on American vehicles from 10% → 0%.

Additionally, the United States will ensure that new Section 232 tariffs on pharmaceuticals, semiconductors, and wood do not exceed 15%

Steel, aluminum, and copper remain excluded from the 15% application and continue to be subject to 50% tariffs under Section 232. The parties intend to evaluate forms of cooperation on steel/aluminum overcapacity, including a possible TRQ - Tariff-Rate Quota mechanism.

3. Rules on Determining Country of Origin (ROO)

The parties will negotiate new rules of origin so that the benefits of the agreement primarily accrue to the USA and the EU. ROO, typical of free trade agreements, define when a good can access preferential treatment.

4. European Purchasing and Investment Commitments

The document stipulates that the European Union:

intends to procure American energy products for an expected value of $750 billion by 2028;
intends to purchase at least $40 billion of American chips for artificial intelligence (AI);
plans a substantial increase in European purchases of American-made military and defense equipment.

Furthermore, European companies are expected to invest an additional $600 billion in strategic sectors in the United States by 2028.

5. Digital Trade

The parties commit to:

counter unjustified barriers to digital trade;
confirm that the EU will not introduce or maintain network usage fees;
support maintaining the WTO moratorium on tariffs for e-commerce.

The Commission clarified that the agreement does not cover:

Digital Services Taxes (DST), adopted or planned by certain member states;
European regulations on the digital economy.

Many American tech companies view these measures as discriminatory. The President has threatened retaliatory tariffs in response to DST.

6. Other Areas of Cooperation

Additional commitments include:

mutual recognition of automotive standards;
simplification of health and safety requirements for pork and dairy products;
cooperation on critical minerals, intellectual property, labor rights, economic security, supply chains, non-market country policies, export controls, and outbound investment review.

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