- 2 days ago
Matthew Martin, senior U.S. economist at Oxford Economics, joined Brittany Lewis on "Forbes Newsroom" to discuss the recently announced trade deal between the United States and the European Union.
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00:00Hi, everybody. I'm Brittany Lewis, a breaking news reporter here at Forbes. Joining me now is
00:08Matthew Martin, Senior U.S. Economist at Oxford Economics. Matthew, thanks so much for joining me.
00:14Hi, Brittany. Thanks for having me. It's good to be back.
00:17Days before President Donald Trump's August 1st deadline, the U.S. and E.U. struck a trade
00:23agreement. And essentially what this boils down to is that they are agreeing to a 15 percent
00:27tariff rate on most E.U. goods. And President Trump described this deal as the biggest deal
00:33ever made. What do you think? What are some of your takeaways here?
00:37You know, I think it's a great question. And obviously, as we're getting more of these deals
00:42across the line, we're getting a bit more information of what, you know, the end game is for tariffs.
00:48Now, in terms of whether this is the largest deal ever, I think that's certainly up for question,
00:53mainly because the deal in itself has a plenty of lacks a fair bit of, you know, details and clarity
01:02of ultimately where it's ended up. And like its previous deals before, it's not a binding contract.
01:07So in the end, you know, we're still left with a little bit of uncertainty.
01:12And that's a similar sentiment that you gave us back in May when you and I were talking about the U.S.-U.K.
01:18framework of a deal. And you said, though, that the U.K. comes out farther ahead than the U.S.
01:24in that deal. What do you think of this one now? Based on the scant details, we know who's the winner,
01:30who's the loser? Yeah, I think first and foremost, you know, obviously, this is an escalation in tariff
01:38rates overall. So I think those who are importing goods from the EU are certainly going to see a bit
01:43of a loss there. I mean, we're moving up towards 15 percent in most sectors. You know, steel and metals
01:50are still 50 percent. So those who are importing are still going to see a higher rate. I think where
01:54the quote unquote winners will be will certainly be on the oil side. The EU had committed to buying
02:01up to 250 billion dollars of gas and oil exports from the U.S. Now, the question there is really just
02:08A, is that feasible? And B is like, how likely are they to be held to that to that contract? And
02:16when we look at the numbers, the U.S. exports somewhere around 300 billion a year in total
02:21exports. So the idea that we're going to be able to double total production and the drop of a hat
02:27seems unlikely. A lot of producers here are more tied to global oil prices and at their current levels,
02:33it doesn't make sense to really ramp up production. And so I think and then in terms of the additional
02:39investment that the U.S. agreed to, 600 billion or something of the like, you know, the EU can't
02:45really force private industry to really invest in the U.S. that they already didn't have planned.
02:50So whether that will actually come to fruition is certainly up for question. So, you know, I think
02:56the win here is that we have some more certainty around tariffs and ultimately where they're going to
03:01end up. But certainly, you know, we're going to be facing higher prices. It doesn't necessarily
03:06mean the U.S. exporters have a lot of additional market access. So, you know, it's hard to really
03:11parse through, you know, who the true wins are at the moment.
03:16I want to talk about this tariff whiplash that we've really seen since April 2nd, which President
03:21Trump dubbed as Liberation Day, because that day he threatened the EU with 20 percent reciprocal tariffs.
03:27And then since then, the threats have changed. At one point, it was 50 percent tariffs for the EU.
03:32Then it was 30 percent. And now we landed on this 15 percent for most goods from the EU.
03:38Do you think that rate is a high enough rate where businesses might say, you know what,
03:42that's too high for me? I can't do business with the United States.
03:48You know, I think it's probably, you know, when we're talking in, you know, if you'd asked me a year
03:53ago, a 15 percent tariff obviously sounded much higher. But at this point, you know,
03:58where we've seen levels come down from, this still, you know, classifies as, you know,
04:02a bit of a de-escalation in, you know, trade talks. I think where, you know, where the real
04:08focus will be is, you know, tariffs are likely here to stay. It does not seem like we're going
04:13to be going down from here. It seems like 15 percent is going to be the base layer across all
04:18countries. You know, in terms of doing business with the United States, it's not going to be like
04:22there's a lot of places to hide for U.S. importers. They're going to be facing similar levels at other
04:27countries. So I think what we're going to see is while we'll get that additional 15 percent on EU
04:34goods, at least the importers know that, you know, this is likely to be the level going forward and
04:39that there aren't going to be additional whiplashes. So I think rather than, you know, cut off the,
04:44you know, any import export from the EU, it's actually going to lead to, you know, continued
04:50trade. You know, there might be some diversion to other countries. U.S. importers might look to other
04:56sources, but at the same time, at least they now have some uncertainty that 15 percent is level.
05:02They can continue to bring them. They can pass that price along either to their customers or the
05:06consumer in the end. And we'll have that, you know, one-time price increase. And then from there,
05:11we'll kind of just move forward as, you know, business as usual, if that is the case. So
05:17there has been mixed reaction to this deal. President Trump, as you and I discussed,
05:23touted it as perhaps one of the biggest deals ever made. The markets reacted favorably to this.
05:29The European Commission president said the deal, quote, creates certainty in uncertain times. It
05:34delivers stability and predictability. But there haven't all been kind words for this deal. The
05:38French prime minister said this, quote, it is a dark day when an alliance of free peoples united to
05:44assert their values and defend their interests resolves to submission. And France's high
05:49commissioner for strategy and planning said the deal was unequal and unbalanced and Europe didn't
05:54wield its strength. We are the world's leading trading power. What do you make of that reaction?
05:59And what does that say to you as an economist? Yeah. And I think for, you know, particularly
06:05those countries in the EU, it's a fair reaction. I think that is a key kind of detail of the deal
06:11overall is that it did not include additional reciprocal tariffs in the EU. So they are essentially
06:16accepting that their goods sent to the US will have this 15 percent watermark, but that they're not
06:21going to apply anything onto US goods. And I think what that really means is, you know, ultimately,
06:27tariffs are going to be used as a sort of source of revenue here in the US, you know, as a, you know,
06:32a tax on US goods coming into the US. And they're unlikely to go anywhere once they're a solid source
06:39of revenue for the federal government. So I think ultimately what it means is that, you know, it seems
06:45like tariffs are here to stay. It seems like if you're willing to play ball with Trump, you know, if the EU is
06:50not going to put on reciprocal tariffs, it's unlikely that other countries are going to feel bold enough to
06:54do so. I mean, obviously, there's still a lot to be had with the US-China negotiations. But ultimately,
07:00you know, it seems like this is kind of the route we're heading towards.
07:04And the EU and the US have such an important trading relationship and they're huge trading
07:09partners. The Commerce Department said that last year alone, the US and EU collectively traded over
07:16$975 billion worth of goods. So what do you think that this deal really does to both economies?
07:22And what do you think this says largely about transatlantic trade?
07:27Yeah, I think, you know, at the end of the day, the additional 15% increase on EU goods is going to
07:35lead to, you know, less consumption of them overall. If it's just a more expensive good,
07:40you're less likely to consume as much. So I think what you will see is a decrease overall in trade
07:44flows, you know, particularly into the US, you know, in terms of additional market access,
07:50you know, outside the oil and gas didn't just seem to be a lot of the lease in the deal itself,
07:55a lot of additional access for US exporters into the EU. So not a lot of, you know, details that
08:02point to expansion of trade flows between the two countries or the EU and the US. So I think
08:10ultimately, this still leads to, you know, less trade. I think the upside here, again, is at least
08:16it leads to some certainty. And it removes at least some of the, you know, hesitation from
08:22doing trade is that you didn't know where tariffs were going to end up, at least for now, you know,
08:26where they are.
08:27And I think that that's a big theme, perhaps the biggest theme really since Liberation Day
08:31was this sense of uncertainty. Because as we know, President Trump has flip flopped on tariffs
08:37over two dozen times since he started his second term. This 15% rate, though, it seems like he's liking
08:44the 15% because a recent deal with Japan, they have the same tariff rate at 15%. August 1st is right
08:51around the corner here. Do you think that that 15% is going to be the baseline?
08:56Yeah, again, I think obviously we've seen some trade deals come through and they've been on major
09:01trading partners, the UK, Japan, the EU, obviously, but there's still a fair bit of countries out there
09:07that have not, you know, had a deal struck at the moment. So it does seem likely that 15% is really,
09:13you know, the starting point. For the EU, you know, there was some benefits in that it was a 15%
09:18for all goods. So that kind of brings down the total tariff on autos, pharmaceuticals,
09:24semiconductors. So, you know, I think that's where we're headed. Ultimately, I think there's going to
09:30be a much different deal struck between the US and China. I think that is a, you know, a different,
09:35you know, partnership unto itself. But for other countries, I think really, the starting point
09:40is 15%. And that we're at least the limit is 15%. And then it's about whittling down from there and
09:47getting other exemptions. And so, again, I think tariffs are here to stay. And we're going to see,
09:52you know, the average effective tariff rate in 2025 and 2026 to be much, much higher than where it was
09:58in 2023 and 2024. And we've seen the Trump administration kick the can down the road when
10:04it comes to these tariff extensions. They say a date and then they say, never mind, it's extended
10:09to X, Y, and Z. The latest extension was August 1st. But it seems like that's the drop dead date.
10:14Commerce Secretary Howard Lutnick just over the weekend said, no extensions, no more grace periods.
10:20August 1st, the tariffs are set. August 1st is just a couple of days away. So what are you looking
10:25out for come August 1st? Yeah, you know, it's, we're going to be obviously paying attention come
10:33Friday, kind of figure out what are what's going to happen. I think ultimately, you know, as we saw
10:39as well over the weekend is that we're during this week is that the US and China negotiations are going
10:44to be kicked down the road. They had their, you know, expiry on their negotiations for August 12th.
10:50That looks to be moved further down the road as they try to, you know, whittle down to a deal.
10:54And I think ultimately, you're going to see a lot of that come August 1st as well. Again,
10:59the biggest deals, a lot of the biggest deals are already out of the way, obviously, EU being
11:02one of those. And so I still think the Trump administration wants to avoid, you know, the
11:08largest of economic repercussions from having these high rates of tariffs. And if he's, you know,
11:14already seeing deals come through on bigger trading partners, maybe he feels confident that,
11:18you know, smaller trade deals are going to come through as well. And so maybe he's more willing to
11:23provide additional race period for those for those deals to be struck. But again, I think we're still
11:30in a period of high uncertainty and kind of trying to predict what happens August 1st is a bit of a
11:36fool's errand, unfortunately.
11:37And I know that we're in high uncertainty. But do you think we'll get to more certain territory
11:44once that China deal is struck and is not just a framework, not just a handshake to a framework,
11:50it's actually signed, sealed, delivered?
11:52Yeah, I think that is likely the biggest piece we really need to, you know, hear from. China is
11:59obviously a large source of imports for a wide range of materials, obviously rare earths being
12:06one, but also computer electronics, but also down to your small items like toys, apparel and whatnot.
12:11And so that is going to be a key, you know, deal that needs to be struck to iron out uncertainty
12:18and really get to a place where businesses can start to plan for the future.
12:22You know, make decisions on where they're going to source goods from, where they're going to invest
12:27in production. I think that's what's really needed in order to, you know, ultimately get to a more certain
12:33period. But again, we haven't seen a ton of breakthroughs in that negotiations. It's been kicked down
12:39another from August 12th to a predetermined date. So I think we're still a bit of a long way off
12:46from that period, unfortunately.
12:49And I think that this is how a lot of the tariff conversations end, right? It's there's a lot of
12:54uncertainty. And until the next time a development comes, I'll talk to you then. And I think that's
12:59where I'm going to end it now that we have this August first date just a few days away. There's a lot
13:04to look out for between now and then. And I hope once we see more of those deals
13:09hammered out, you can join me again. Thank you so much for joining me. You are welcome back
13:13anytime. Matthew Martin.
13:15Matthew Martin Absolutely. Thanks again for having me.
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