On Tuesday, European equity markets made a comeback following a downturn in the prior trading session, with investors mulling over the potential implications of the recently struck trade agreement between the US and the EU. By midmorning, a considerable uptick was noted in the STOXX Europe 600 index, rising by 0.6%, buoyed by positive corporate news. Similarly, there was an approximate 1% increase in both France’s CAC 40 and Germany’s DAX. The UK’s FTSE 100 also experienced a slight surge, climbing by 0.2%.
Despite these gains in the equities realm, the strength of the Euro in the European single market remained on a downward trajectory. In an unusual turn of events, stocks in Europe lost their initial gains on Monday, with the Euro seeing a slump amid controversy concerning the recently made trade deal between the US and EU, which had been subject to sharp criticism and deemed a ‘disappointment’ for the EU.
Investors spurred on the drop of the single European currency, which plummeted more than 1% against the US dollar, bringing it closer to the $1.16 mark. They wagered that the newly minted deal would likely negatively impact the European economy. There was a similar atmosphere in the stock markets, which receded from their initial highs; the leading German index – the DAX – fell 1% in Frankfurt, and France’s CAC 40 decreased by 0.4% in Paris.
The UK’s FTSE 100 index mirrored this trend, regressing by 0.4%, or 38.87 points, bringing it down to 9081.44. While European markets exhibited signs of frailty, the scenario played out differently on Wall Street. The NASDAQ and S&P 500 indices in the US soared to unparalleled levels, attaining historic highs.
Trevor Greetham of the Royal London Asset Management reflected on the situation, stating, ‘Of course, it is noteworthy that a deal has been reached, but if one looks beyond the surface-level excitement, it is clear that this symbolizes a downturn in trade affiliations rather than an enhancement.’ Drawing from the marketplace’s reaction, Greetham hypothesized that the US seems to be the main beneficiary from the trade agreement, considering that the S&P 500 and NASDAQ indices reached record-breaking peaks while European markets looked decidedly more restrained.
A careful examination of the agreement uncovers a significant imbalance in favor of the US. As per the terms hammered out between US President Donald Trump and European Commission President Ursula von der Leyen, most EU exports to America will be subject to a 15% tariff. Although this falls short of the initially threatened 30% rate by the White House, it is still a hefty increase from the previous 1.5% tax rate and far higher than the 10% rate negotiated by post-Brexit Britain.
This agreement raises the alarm for European exporters, who last year channeled approximately £450 billion worth of diverse commodities–ranging from automobiles to medical goods and wine–into the American market. To add to the equation, US exports to the EU were valued at £275 billion in 2024 and will not see a rise in tariffs under the new deal.
As part of the deal, the EU will also engage in additional investment to the tune of £450 billion in the US, including on the military equipment front. They have also agreed to earmark more than £550 billion for energy-related projects. While President Trump hailed the pact as ‘the most significant deal ever struck’, President von der Leyen was compelled to concede that it was merely ‘the best compromise we could manage’ whilst weathering a storm of widespread criticism throughout Europe.
At the heart of the furore, Clemens Fuest, the president of the IFO economic research institute based in Munich, offered his interpretation: ‘The trade deal is a setback for the EU, but it is a mirrored reflection of the power dynamics. Europeans must brace themselves for the challenges ahead, intensifying their focus on economic prowess and breaking free from their military and technological reliance on the US.’
Echoing similar sentiments, Arnaud Bertrand, a French entrepreneur known for his successful sale of House Trip to TripAdvisor, viewed the agreement as a ‘huge unilateral wealth transfer with no matching benefits.’ In his words, ‘The arrangement offers no advantage to the EU. It’s akin to Europe’s century of embarrassment.’
On the other hand, Jonathan Reynolds, the Business Secretary of the UK, contested confidently that the UK succeeded in obtaining a lower tariff rate of 10% on account of Brexit, emphasizing that there was ‘absolutely no doubt’ about it. This lower rate stands in stark contrast to the 15% tariff imposed on EU exports to the US.
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