President Trump, visiting his golf courses in Scotland, is positioning the deal as a win. The agreement includes a large amount of direct investment into the U.S. by Europe, including: $750 billion of energy purchases, $600 billion in extra direct investment, and the purchase of “a vast amount of military equipment,” the president said.
S&P 500 futures moved up 0.27% this morning but the STOXX Europe 600 rose by more than double that in early trading.
Why are investors in Europe so happy about Trump’s great victory over them? The devil is in the details, and the pact seems to contain several advantages for the EU.
The deal does not require the EU to alter its digital services tax on large tech companies.
There is also no current change in drug pricing rules. The pharma industry is one of Europe’s biggest, and Trump has long complained that Europeans get drugs cheap because companies inflate pricing in the U.S.
Meanwhile the “new” direct investment and military purchases may likely have happened anyway—Europe is fighting a war against Russia on its Eastern flank, after all.
“The irony is that this is the one thing that U.S. companies would have most wanted out of any trade deal. Instead, they have been hit with a massive hike in tariffs on imports … without any increase in EU market access.”
In Europe, analysts seem to be concluding that deal is mostly Scotch mist. The tariff level itself is much lower than what Trump previously threatened, and the accompanying investment will get lost in the mail.
“The EU and the U.S. agreed that U.S. consumers should pay more tax—levied at 15% for imports from the EU. EU President von der Leyen made vague pledges to buy stuff from and invest in the U.S., without the necessary authority to make those pledges reality. Pharmaceuticals and steel seem to be excluded from this deal. The result is better for the U.S. economy than the worst-case scenario, but worse for the U.S. economy than the situation in January this year,” UBS’s Paul Donovan told clients this morning.
Here’s a snapshot of the action prior to the opening bell in New York:
