Tariff Escalation Without Gains: The Real Costs of the U.S.–EU Framework

Not Addressing U.S. Big Tech Priorities

• The framework does not touch critical issues raised by American tech firms, such as the EU’s Digital Services Tax (DST) or regulatory regimes under the Digital Services Act (DSA) and Digital Markets Act (DMA)
• These U.S. companies have lobbied for the removal of DSTs and softer enforcement of DSA/DMA provisions, but none of this is on the table in the current framework

Inflationary Risks for the U.S. Economy

• Broad-based tariffs raise border prices for imported goods, which in turn increase consumer prices and feed inflation throughout supply chains
• Analysts estimate the new tariffs could add 0.2–0.3 percentage points to core PCE inflation—and potentially push it above 3.6% if fully passed through to consumers
• While some buffering has occurred—inventory stockpiling and staggered tariff rollouts—most economists expect inflationary effects to materialise fully by late 2025 or early 2026
• If the U.S. dollar fails to appreciate significantly, inflationary pressure remains concentrated in the U.S. even as euro‑area demand contracts

Flouting WTO Norms and Undermining Global Trade Rules

• The broad, unilateral imposition of tariffs—without WTO-sanctioned justification—violates World Trade Organisation principles and weakens the multilateral system
• The EU has already signalled its intent to launch formal WTO legal actionsagainst these U.S. tariffs as unjustified measures
• Trade policy unpredictability itself acts as an economic drag—investors delay decisions, firms postpone expansion, and international coordination falters—depressing growth in both the U.S. and global markets

Sectoral and Strategic Realities

• The auto industry remains exposed: domestic manufacturers, particularly in autos and components, face competition from imports that enter at 15%, while they still pay high input‑cost tariffs (e.g. 50% on aluminium and steel)
• Similar concerns apply to pharmaceuticals, semiconductors, and chemicals—few exemptions have been clarified, and key sectors remain uncertain or unresolved in the text

Bottom Line & Policy Risks

• This framework imposes higher import costs on consumers and businessesin the U.S. while yielding no reciprocal tariff relief for American exporters.
• It fails to advance U.S. requests on digital taxation and regulation, leaving Big Tech interests unmet.
• It carries strong inflationary potential through direct and second‑round price effects, risking core inflation of 3% or more by late 2025.
• The strategy undermines WTO governance, relying on unilateral coercion rather than negotiated, rule-based resolution.
• As a non-binding framework, its terms remain fluid—and consumer burdens or sector distortions could worsen if negotiations falter.