Cailin Birch, Global Economist at the Economist Intelligence Unit, analyzes the U.S.-EU trade deal and its impact on digital taxation.

Brussels

The United States and European Union have reached a new trade framework that introduces a 15% tariff, marking a significant increase from previous levels. This move adds costs for multiple industries and brings ongoing uncertainty, particularly as some details—such as the exact tariffs for steel and pharmaceuticals—remain unclear.

A notable omission from the agreement is any specific mention of digital service taxes, an issue that has previously complicated U.S.-EU trade relations. While the EU managed to secure some concessions, both sides did not achieve all their objectives, and the lack of clarity on digital service taxes is expected to remain a significant challenge in future negotiations.

Scant details on Digital Service Tax in U.S.-EU trade deal

Well, I think what you've just been saying is right. It's a climb down from a much worse place. So, a 15% tariff is still a big escalation from where we were pre-Trump 2.0, so before the start of the second term. 15% will add to the cost for a number of industries. And then, of course, there's added uncertainty because there's slightly different messaging coming out about whether or not steel's at 50% or something less, or what pharmaceuticals are going to look like under this framework deal. So, there's a not great trade tariff number and then a lot of uncertainty. But it's still better than the alternative. So, I would expect to see markets taking a breath of relief today. Well, for sure, for the time being at least, that's the indications we're getting from European futures at this hour. But I would also like to ask you about the winners and the losers because there's a very quick reaction trying to understand who's actually winning and losing from this trade compromise. I'm trying to understand from your point of view whether at this stage we can actually safely conclude who are the winners and who are the losers. Well, I think then we could look at the sectoral breakdown. There is a bigger question about should the EU have played this differently? Could they have worked together with China to put extra pressure on the US as these trade negotiations were ongoing or even other countries? And of course, it's easy in hindsight to say that it should have been done differently. This has been the period of greatest uncertainty in economic policymaking that we've seen in history, including the pandemic and stretching back to as long as these records have been kept. So, I think in terms of equal footing, both sides are set back a bit from this deal. The EU managed to only secure a 50% tariff. But we have to remember as well, the US didn't make any headway on a lot of the issues that have, in recent history, been critical to their trade approach to the EU. So, agricultural standards, the tech industry regulating standard that has been a big bugbear. There was no real mention of those standards whatsoever. Again, the deal is not done yet, but that seems to have been entirely left to the side. And then another thing that's quite interesting is no specific mention of digital services taxes. That had been one of the things in recent years that we thought would get in the way of any trade deal between the US and the EU in a more meaningful way. And again, this framework deal announced with no hint as to what's coming next for those DSTs. That's still going to be a huge issue moving forward. So, Europe is on the back foot with that 15% tariff, undoubtedly. But the US didn't get everything that it wanted either.

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