The US-EU tariff agreement is better than expected, Goldman Sachs raises European economic growth forecasts

According to CCTV News, on July 27 local time, U.S. President Trump stated that the United States has reached a tariff agreement with the European Union with a tax rate of 15%. According to news from the Chasing Wind Trading Desk, Goldman Sachs estimates in its latest research report that the agreement raises the effective tariff rate on EU goods exported to the U.S. from the current approximately 10% to about 16%, slightly lower than its previous assumption. Based on this, Goldman Sachs has revised its estimate of the impact of trade tensions on the Eurozone's real GDP from -0.6% to -0.4%. Goldman Sachs expects that the agreement will have a positive impact on the European economic outlook, and in the report, it raised its growth forecasts for Europe in 2025 and 2026 by 0.1 percentage points each, to 1.1% and 1.2%, and expects to increase the likelihood of the European Central Bank maintaining interest rates unchanged in September. Significant Tariff Reductions for the Automotive Industry The report states that the automotive tariff will be reduced from 27.5% to 15%, marking an important victory for the EU in the negotiations. Goldman Sachs data shows that the EU's exports of automotive-related products to the U.S. amount to approximately 60 billion euros, accounting for 10% of the EU's total exports to the U.S. Among these, Germany and Italy together account for 74% of the EU's automotive exports to the U.S., making them the main beneficiaries of this concession. Pharmaceutical Products Temporarily Exempted Until 2027 Although the European Commission stated that the new 15% tariff will apply to "most industries, including pharmaceuticals," considering the sensitivity of drug prices, Goldman Sachs expects that pharmaceutical tariffs will not be implemented until early 2027. The report predicts that Ireland, Germany, Belgium, and Italy together export over 80% of the EU's pharmaceutical products to the U.S., making them the main beneficiaries of this exemption policy. Steel and Aluminum Tariffs Remain Unchanged, Zero Tariff Coverage for Some Goods Tariffs on steel and aluminum products will remain at the existing level of 50%. EU President Ursula von der Leyen announced plans to reduce export barriers for metals in the future by cutting tariffs and introducing a quota system to "reduce barriers between the U.S. and Europe." The report shows that steel and aluminum products only account for 4% of the EU's total exports to the U.S. in 2024, approximately 23 billion euros. In addition, some EU export goods will enjoy "zero-for-zero" tariff treatment, including aircraft and aircraft parts, semiconductor equipment, certain chemicals, specific generic drugs, some agricultural products, natural resources, and key raw materials. EU Commits to Significantly Increase Purchases from the U.S., but Faces Challenges As part of the agreement, the EU commits to purchasing $750 billion worth of U.S. energy products over the next three years, making $600 billion in U.S. investments, and purchasing a large amount of U.S. military goods. Based on this calculation, the EU's annual energy imports will amount to $250 billion, which is more than three times the current EU energy imports from the U.S., accounting for about 60% of the EU's total energy imports and 80% of U.S. energy exports. Goldman Sachs points out that even including existing procurement plans, achieving this import growth target is extremely challenging. The Impact of Tariffs on the Economy is Better than Expected Based on a smaller effective tariff increase, a potential decrease in trade policy uncertainty, and better-than-expected economic activity data, Goldman Sachs has revised its estimate of the agreement's drag on the Eurozone's real GDP from -0.6% to -0.4%. In terms of the economy, Goldman Sachs has raised its growth forecast for the third quarter of 2025 by 0.1 percentage points, for the fourth quarter by 0.2 percentage points, and for the first quarter of 2026 by 0.1 percentage points. This results in an upward revision of the annual average growth forecasts for 2025 and 2026 by 0.1 percentage points to 1.1% and 1.2%, respectively. Regarding inflation, Goldman Sachs stated that considering the EU has no retaliatory measures, the agreement has slightly increased the negative impact on inflation in 2026, but the impact for 2027 is expected to remain unchanged. Overall, the agreement has increased the likelihood that the European Central Bank will maintain interest rates in September, aligning with Goldman Sachs' prediction of no further rate cuts