EU’s Red Line Fades as US Tariff Demands Hold Firm

• EU negotiators face challenges in lowering the U.S.’s 10% baseline tariff rate on reciprocal tariffs, as the U.S. benefits from increased tariff revenues, with April 2025 customs duties doubling year-over-year and a $258 billion budget surplus, up 23% from April 2024.
• The EU, with a $236 billion trade surplus with the U.S. in 2024, aims to secure a trade deal before July 9, to prevent tariffs on most goods rising from 10% to up to 50%, following existing 50% steel and 25% car tariffs.
• U.S. demands extend beyond tariffs to include non-tariff barriers like digital services taxes and food standards, while the EU resists a double-digit baseline rate, similar to Britain’s limited trade deal retaining 10% tariffs.

European Union negotiators face mounting pressure in trade talks with the United States, where a 10% baseline tariff rate on reciprocal tariffs has emerged as a central sticking point, according to five sources familiar with the discussions, as reported by Reuters. The EU, grappling with a $236 billion trade surplus with the U.S. in 2024, is pushing to lower this rate, but U.S. officials, led by Commerce Secretary Howard Lutnick, have firmly ruled out dropping below 10% for tariffs covering most EU goods exported to the U.S. This stance is bolstered by the U.S. collecting significant revenues from global tariffs, with April’s net customs duties more than doubling compared to the prior year, contributing to a $258 billion budget surplus, a 23% increase from April 2023.

The EU’s urgency to secure a deal stems from the looming threat of tariff escalation. Since President Donald Trump imposed 50% tariffs on European steel and aluminum and 25% on cars, negotiators aim to finalize an agreement before July 9, when tariffs on most other goods could surge from 10% to as high as 50%. One EU official noted to Reuters the difficulty of negotiating below the 10% rate, stating, “10% is a sticky issue. We are pressing them, but now they are getting revenues.” A second source acknowledged that while the EU has not formally accepted the 10% baseline, dislodging it appears increasingly challenging. The EU has publicly rejected a double-digit baseline, aligning with Britain’s position, which secured a limited trade deal in May retaining 10% tariffs on its exports while reducing higher rates on steel and cars.

Trump’s broader trade strategy seeks to shrink the U.S. goods trade deficit with the EU and leverage tariff revenues to fund ambitious tax cuts and spending plans. He has criticized the EU’s offers as unfair, while U.S. negotiators are broadening the scope of talks to include non-tariff barriers like digital services taxes, corporate sustainability reporting, LNG sales, and food standards. The EU’s trade surplus with the U.S. gives it significant exposure to tariff hikes, unlike Britain, which runs a trade deficit and faces less risk.

The global trade landscape underscores the EU’s predicament. Trump’s tariff policies have reshaped negotiations, with the U.S. capitalizing on tariff income to strengthen its fiscal position. The EU’s push for lower tariffs reflects its economic reliance on U.S. markets, but the 10% baseline, now entrenched by U.S. revenue gains, limits negotiating leverage. As deadlines approach, the EU must balance its economic interests with the reality of a U.S. administration prioritizing domestic fiscal and trade objectives.

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