EU awaits Trump letter as markets digest latest tariff salvo

By Julia Payne and Philip Blenkinsop

BRUSSELS (Reuters) -The European Union braced on Friday for a possible letter from U.S. President Donald Trump outlining planned duties on the United States' largest trade and investment partner after a broadening of his tariff war in recent days.

The EU initially hoped to strike a comprehensive trade agreement, including zero-for-zero tariffs on industrial goods, but months of difficult talks have led to the realization it will probably have to settle for an interim agreement and hope something better can still be negotiated. 

The 27-country bloc is under conflicting pressures as powerhouse Germany urged a quick deal to safeguard its industry, while other EU members, such as France, have said EU negotiators should not cave into a one-sided deal on U.S. terms.

After keeping much of the world guessing, Trump has outlined new tariffs for U.S. imports of goods from a number of countries, including allies Japan and South Korea, along with a 50% tariff on U.S. imports of copper, and a hike to 35% on Canadian goods.

His cascade of tariff orders since returning to the White House has begun generating tens of billions of dollars a month in new revenue for the U.S. government. U.S. customs duties revenue shot past $100 billion in the federal fiscal year through to June, according to U.S. Treasury data on Friday – exceeding the largest annual take ever from customs duties.

U.S. consumers face an effective U.S. tariff rate of more than 20%, the highest since the early 1900s, the International Chamber of Commerce estimated this week after Trump's latest announcements. Rates are already around 16%, their highest since the 1930s. Economists expect much of that to be passed along as higher consumer prices for imported goods, although there is only limited evidence of that occurring so far.

"So at some point, the new tariffs will start to bite, or if companies decide they can't trade under those conditions, shelves will start to look decidedly sparse," ICC Deputy Secretary General Andrew Wilson said.

A person with knowledge of the U.S.-EU negotiations said an agreement was close, but that it was hard to predict if the EU might still get a letter announcing more tariffs or when any agreement might be finalised.

European winemakers, who rely in part on American drinkers of their products, are among the industries who have worried about not being included in tariff exemptions in any deal.

European shares dipped on Friday as investors awaited word on tariffs for the EU, while U.S. stocks dipped in response to the upsized tariff rate Trump announced for Canada late on Thursday. Gold prices, meanwhile, rose for a third straight session on higher demand for the safe-haven asset. 

Investors appear increasingly inured to Trump's tariff announcements after having near-panic reactions to the first announcements back in winter.

However, businesses are increasingly altering supply chains, reducing imports and in some cases holding off on orders due to the uncertainty surrounding tariffs. Suppliers of Walmart have delayed some orders of Bangladesh-made clothing. Levi's and other retailers are limiting shipments of goods that don't sell as well to avoid tariffs on products destined for discounts. Auto suppliers are asking customers to pay more for cars because of additional levies on metals.

The jacked-up rates Trump unveiled out of the blue this week on U.S. imports from Brazil and Canada are emblematic of his unpredictable approach. The 35% tariff on Canadian goods is an increase from the current 25% rate he had assigned and is a blow to Canadian Prime Minister Mark Carney, who was seeking a trade pact with Washington.

Trumps says the new rate will take effect on Aug. 1 and could go up further if Canada retaliates.

"Throughout the current trade negotiations with the United States, the Canadian government has steadfastly defended our workers and businesses," Carney said in a statement. "We will continue to do so as we work towards the revised deadline of August 1."

The EU has drawn up countermeasures against Trump's tariffs, but has not imposed them. An initial 21 billion euros ($24.5 billion) of levies on U.S. imports due in April was suspended before taking effect. Another package, on some 72 billion euros of U.S. imports, could also be applied.

"Basically, if a political decision is made to extend the suspension, then we'll extend the suspension," EU spokesperson Olof Gill told reporters. "If we need to unsuspend it, we can do that, you know, at the drop of a hat."

CONSTRUCTIVE

Elsewhere, U.S. Secretary of State Marco Rubio met with Chinese Foreign Minister Wang Yi in Kuala Lumpur on Friday. Both sides described the meeting as constructive. 

China warned the U.S. this week against reinstating hefty levies on its goods next month and Beijing has also threatened to retaliate against nations that strike deals with the U.S. to cut China out of supply chains.

Trump has periodically railed against the EU, saying in February that it was "formed to screw the United States" and asking why Europe exports so many cars but buys so few from the U.S. in return.

His biggest grievance is the U.S. merchandise trade deficit with the EU, which in 2024 amounted to $235 billion, according to U.S. Census Bureau data. The EU has repeatedly pointed to the U.S. surplus in services that in part redresses the balance.

(Writing by Matthias Williams; Reporting by Philip Blenkinsop, Julia Payne, Charlotte Van Campenhout, Geert De Clercq, Daphne Psaledakis; Additional reporting by Josephine Mason; editing by Barbara Lewis and Nick Zieminski)