EU-US Trade Deal and how the UK secured a better one
Trump's tariff negotiations with the EU have stalled, forcing Brussels to accept a disadvantageous 10% baseline tariff while the UK secured preferential sectoral deals through aggressive early diplomacy. The EU deadline has been extended to August 1, 2025, with negotiations continuing under threat of 50% tariffs if talks fail. The UK's May 2025 trade deal demonstrates Brexit's first major dividend, securing better terms than the EU through sectoral exemptions including zero tariffs on steel and aluminum, reduced car tariffs from 27.5% to 10% for 100,000 vehicles annually, and preferential treatment on pharmaceuticals.
Key contrasts emerge: The UK secured sectoral advantages the EU cannot match, including zero-tariff steel/aluminum access and automotive quotas, while the EU faces 17% tariffs on agricultural products and limited sectoral exemptions. Trump's strategy rewards bilateral dealmaking over multilateral negotiations, with one EU diplomat noting "The UK agreement was better than this" despite longer EU negotiations. The $156.2 billion in tariff revenue represents the largest U.S. tax increase since 1993, averaging $1,200 per household annually.
Forecast Scenarios (GCHQ)
Likely (65-75%): Limited EU Deal with Higher Baseline Tariffs
The EU will likely accept a framework agreement featuring the 10% baseline tariff with limited sectoral exemptions by August 1, 2025. European Commission President Ursula von der Leyen acknowledged a detailed agreement was "impossible" during the 90-day reprieve, aiming instead for "an agreement in principle". This scenario involves the EU accepting higher agricultural tariffs (17%) and fewer sectoral exemptions than the UK achieved, reflecting Trump's preference for bilateral deals and punishment of multilateral institutions. The agreement would provide temporary stability while preserving Trump's leverage for future negotiations.
Realistic Possibility (50-60%): Escalating Trade War with Retaliation
If negotiations fail, Trump implements 50% tariffs on EU goods starting August 1, triggering comprehensive EU retaliation. The EU has paused retaliation during talks but counter-tariffs on €21 billion of annual US exports should apply from July 14, with the Commission assembling €95 billion more in retaliatory measures. This scenario would create a full-scale trade war, damaging both economies and potentially spreading globally as other countries choose sides. The UK's preferential position would become even more valuable, potentially accelerating European corporate relocations to Britain.
Unlikely (25-35%): Comprehensive EU-US Trade Agreement
A comprehensive agreement removing most tariffs and addressing fundamental trade barriers remains unlikely given Trump's antipathy toward the EU and preference for bilateral deals. Trump has long been hostile to the European project, calling the EU "nasty" and claiming it was set up to "screw the United States". The EU's institutional complexity and requirement for unanimous member state approval on trade matters conflicts with Trump's preference for rapid, bilateral negotiations. Even if achieved, such an agreement would likely face implementation challenges and ongoing disputes.
