EU increasingly resigned to 10% baseline tariff in US trade talks, European sources say

By Julia Payne and Jan Strupczewski

BRUSSELS (Reuters) -European officials are increasingly resigned to a 10% rate on "reciprocal" tariffs being the baseline in any trade deal between the United States and the European Union, five sources familiar with the negotiations said.

President Donald Trump has announced wide-ranging tariffs on trade partners and wants to reduce the U.S. goods trade deficit with the EU. U.S. Commerce Secretary Howard Lutnick has ruled out going below a 10% baseline rate for the so-called reciprocal tariffs that cover most goods the EU exports to the U.S.

EU negotiators are still pressing for the rate to be lower than 10%, said the European sources, who spoke on condition of anonymity because of the sensitivity of the talks.

But one of the sources, an EU official, said negotiating the level down had become harder since the U.S. started drawing revenues from its global tariffs.

"10% is a sticky issue. We are pressing them but now they are getting revenues," said the official.

A second European source said there had been no acceptance by the EU of 10% as the baseline rate at talks, but acknowledged that it would be difficult to change or abolish that baseline.

A spokesperson for the European Commission, the EU's executive body which negotiates trade deals for the 27-nation bloc, did not respond to a Reuters request for comment. The U.S. government also did not immediately comment.

The EU has said publicly it will not settle for a double-digit baseline rate - as did Britain, which agreed a limited trade deal in May that retains 10% tariffs on British exports while cutting higher rates for steel and cars.

Trump has hit Europe with a 50% tariff on steel and aluminium and a 25% levy on cars, and the EU is trying to secure a deal before July 9, when reciprocal tariffs on most other goods could rise from 10% to up to 50%.

With an annual trade surplus of $236 billion with the U.S. in 2024, the EU has more to lose from tariffs than non-EU member Britain, which runs a trade deficit with the U.S.

Trump, who has said he wants to use tariff revenues to help finance his sweeping tax-cut and spending bill, said on Tuesday the EU was not offering a fair deal.

Washington has sought to fold non-tariff barriers, such as digital services taxes and corporate sustainability reporting rules, as well as LNG sales and food standards into the talks.

The U.S. posted a $258-billion budget surplus for April, up 23% from a year earlier, and the Treasury Department said net customs duties in April more than doubled versus the same period last year.

TARIFF IMPACT

The sweeping tariffs imposed by Trump since early April and the subsequent pauses on some of them have generated upheaval for companies worldwide, causing some to withdraw or refrain from giving financial guidance.

European automakers have been hit hard. Mercedes pulled its earnings guidance, Stellantis suspended its guidance and Volvo Cars withdrew its earnings forecasts for the next two years.

One European car executive said premium carmakers could stomach a 10% tariff but that it would be much tougher for a mass-market producer.

The tariffs targeting steel and aluminium, and cars and car parts, were applied on grounds of national security, with investigations into pharmaceuticals, semiconductors, timber and trucks possibly leading to further increased duties. EU officials say they are not willing to accept these.

Trump said on Tuesday that pharma tariffs were "coming very soon".

A pharma industry source said the European Commission was resisting sector-specific tariffs. The Commission has told the pharma industry that while it does not want the 10% baseline reciprocal tariffs, accepting a 10% base tariff may provide leverage in those negotiations, the source said.

A European beverage industry source said the wine and spirits sector would rather have a deal at 10% than protracted negotiations.

Not securing a deal would have a "huge negative impact... on our market," said Rob van Gils, CEO of Austrian company Hammerer Aluminium Industries. "It can be 0 it can be 10%. If it’s both ways that’s all manageable. It will not kill business."

One EU official said a 10% baseline rate would "not massively erode competitive positions, especially if others receive the same treatment."

France Industries, which represents France's biggest companies such as L'Oreal and Airbus in Brussels, said tariffs should not be viewed in isolation.

"It’s an additional burden on top of rising energy prices, inflation, regulatory pressure and global overcapacity," said its head, Alexandre Saubot.

($1 = 0.8672 euros)

(Additional reporting by Philip Blenkinsop in Brussels, Christina Amann in Berlin, Tassilo Hummel in Paris, Giuseppe Fonte in Rome, John Irish in Banff; Editing by Richard Lough and Timothy Heritage)