While the outcome of trade talks between the United States and the European Union remains unclear, analysts at Barclays have warned that there is a risk of escalating tensions.
European trade officials met with Trump administration officials in Washington this week, ahead of the deadline for a moratorium on sweeping US “reciprocal” tariffs, which is set to expire on Wednesday.
However, a trade deal is yet to be reached, with the EU pressing for an agreement “in principle” to be reached, including immediate tariff reductions for key sectors.
Media reports suggest that the deal could see the European Commission, the EU’s lead trade negotiator, accept a basic 10% tariff from the US in exchange for reduced duties on certain industries.
However, there are those in Brussels who want a tougher approach, pushing for the 10% tariff rate to be reduced as well.
“What is clear is that European countries remain divided in their approaches, including on the possibility of retaliation. Germany and Italy are inclined to conclude a deal quickly, while France is taking a more aggressive approach,” Barclays analysts led by Silvia Ardagna wrote in a note to clients.
They expect the base case to be that the negotiations will lead to an average tariff rate of around 15% on EU exports to the US, with the status quo extended beyond the July 9 deadline to allow for further discussions.
They also expect US tariffs on pharmaceuticals and semiconductors to rise to 25%.
“The upside risk is that the actual tariff rate is lower than expected — possibly due to quotas or lower sector-specific tariffs, although some sectors such as pharmaceuticals are currently tariff-free,” they added.
“The downside risk is that the negotiations fail and the US imposes reciprocal tariffs above 10%, at least temporarily.”
