A political trade agreement reached in late July between the European Union and the United States is a positive outcome, especially considering what the alternative could have been, says Jovita Neliupšienė, the EU Ambassador to the US, who personally took part in the negotiations.
“If we had pursued and believed a trade war was a viable option, we would have to calculate its cost. That cost would have been far more painful,” she told LRT.lt in an interview.
Neliupšienė offered some insights into the behind-the-scenes negotiations that have been ongoing since mid-April and assessed the impact new tariffs will have on Americans and businesses in Lithuania.
“Most of these tariffs will ultimately be paid by US consumers,” she stated with confidence.
“Lithuania and other countries do not operate in isolation. Our supply chains are deeply connected to the German automotive industry,” Neliupšienė reminded.
How were the negotiations? Difficult? What were the main points of contention?
When the books are written, we’ll share the details. The clearest takeaway is that tariffs have never been the EU’s primary tool in trade policy. The negotiations repeatedly mentioned that other means exist to address issues the US sees as key – balancing trade deficits, improving market access, and how to collect certain taxes they wanted. These were the core issues under discussion.
Was the workload intense?
Trade Commissioner Maroš Šefčovič met with US Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer about ten times, both in person and virtually.
There were also technical preparatory meetings from mid-April through July, often weekly or biweekly. So, I think, the intensity was significant.
The agreement that was reached in late July – is it a good deal?
No one in the EU wants tariffs. But what is the alternative? Before the political deal, nearly 70% of EU exports faced a 10% tariff, cars faced 25% and 2.5% tariffs (total 27.5%), steel and aluminium were hit with 50%, and ongoing national security investigations initiated by the US, seeking to determine whether there has been any abuse of national security concerns in sectors such as pharmaceuticals, semiconductors, and aviation.
We even received a letter from President Donald Trump warning of a potential 30% tariff if talks failed. Given that US-EU trade totals €1.7 trillion annually, higher tariffs would have been a poor outcome.
Also, the 15% tariff includes all other potential additional charges. At least when it comes to pharmaceuticals, this also covers the application of any future tariffs.
Compared to other countries – Brazil faces 50%, Canada 35%, India 25%, Japan and South Korea 15%, and the UK 10% – are EU tariffs high or low?
Any tariff is too high from our perspective. But, as I previously said, the question remains – what is the alternative? Tariffs on other countries are much higher, except for the UK. I believe that it’s better to have lower tariffs than higher ones.
On the other hand, since the EU is the largest US trading partner, these tariffs will ultimately be borne by US businesses and consumers.
Is there a rationale for the 15% tariff? Or more of a political decision?
That’s a question for the US side. Explaining the 15% is complex, but the important point for Lithuania and the EU is that this rate includes all other tariffs, unlike before when companies effectively paid 27.5% on cars despite the headline 25%.
Were cars and pharmaceuticals given special attention in the talks?
Cars and their parts make up a significant portion of our exports to the US. Furthermore, EU companies that are already established in the US and produce vehicles locally – also serving the South American market – import the majority of their components.
Until now, the tariff was 27.5%, which was unbearable for business. Some economists argue that such trade simply isn’t viable. Not to mention the 50% tariffs applied to steel and aluminium, which effectively restrict trade. Although, unlike with cars, steel and aluminium do not make up a large share of EU exports. We export only very niche products that the US does not produce itself.
So, these negotiations were full of complexities simply because we are talking about very different volumes and compositions. It’s important to note that a large proportion of European cars made in the US are exported. BMW and Mercedes-Benz are among the biggest exporters from the US. There is a strong likelihood that imposing very high tariffs would also harm US exports.
The lower tariff on EU imports exists partly because the US manufactures these products itself and exports them, supporting their economy.
The agreement includes a list of goods exempt from new tariffs, including aircraft and their parts, certain chemicals, agricultural products, and raw materials. Will this list grow?
The deal was reached in late July, and the US President issued a directive outlining applicable tariffs on the EU. However, detailed agreements are still needed. The list is largely agreed upon and can be further expanded, allowing for zero tariffs on more products. Further negotiations will continue.
What else might be added to this list?
The more, the better.
There are two other points in the agreement that require clarity – perhaps even more so than the tariffs. First, there is the commitment to purchase $790 billion worth of American energy products and semiconductors over three years. Is that even feasible? What happens if we fail to meet this target? And what is the significance of these expenditures for Europe?
This figure represents the amount EU member states intend to spend on these energy resources. Additionally, the total includes semiconductors, most of which we currently import from the US. The EU is currently funding five so-called gigafactories – large data centres where artificial intelligence will be developed. So even the public sector will require these semiconductors.
The other part concerns energy resources, which include not only liquefied natural gas (LNG) but also refined petroleum products and enriched uranium. As is well known, the EU has committed to phasing out Russian LNG by the end of 2026. Therefore, demand for gas on the domestic market is certainly going to increase.
Currently, the EU spends around €70 billion annually on purchasing LNG alone. It’s easy to calculate that the remaining amount over three years is not particularly large – especially considering that we are phasing out Russian LNG and enriched uranium.
There is also a promise to invest $600 billion in the US by 2029. Will Lithuania contribute? Some Lithuanian companies, like SBA Group and Teltonika, are known to have US investment plans. Are these companies helping improve transatlantic relations?
The European Commission’s calculations focus on large EU companies’ planned investments. The EU is already the largest foreign investor in the US, with investments worth about €5.4 trillion. While $600 billion is significant, it is spread over several years.
For example, the EU automotive industry is among the biggest investors in the US. Companies like Mercedes-Benz have announced €40 billion investment plans. Naturally, Lithuanian and other EU companies’ investments will contribute to the total.
In Lithuania, concerns over higher tariffs to the US are limited, affecting mainly exporting companies, with no expected major macroeconomic impact. Other EU countries are more pessimistic. Which countries are most affected by this agreement?
For every EU country, including Lithuania, the key benefit of the deal is stability, clarity, and predictability. Countries with large and developed automotive sectors, such as Germany, France, Italy, and Belgium, where higher tariffs hit hardest, are most concerned.
From what we’ve heard from President Trump about the entire pharmaceutical industry, without an agreement, there would be significant concern for those countries with well-developed pharmaceutical sectors. These include Ireland, Italy, France, Belgium, and others.
Lithuania and others are not isolated. Our supply chains are closely tied to the German automotive industry – we manufacture parts for them. We also have pharmaceutical companies such as the US company Thermo Fisher Scientific, a major taxpayer in Lithuania.
So, the impact on Lithuania will be felt, though likely less dramatically than in some countries. Investment in efficiency, automation, and productivity will be necessary.
Critics say the deal is one-sided, favouring the US while harming the EU. Retaliatory measures were dropped. Should the EU have restricted trade instead?
This was a political decision by EU leaders. Our trade relations are broad, covering sectors from agriculture to automotive, aerospace, and pharmaceuticals.
Had we pursued a trade war, the costs would be far greater. It’s hard to predict where tariffs would have ended up.
Currently, India is buying Russian oil, and Trump threatens higher tariffs on India and secondary sanctions on Russia. Would you support such measures?
The US President has said the goal is to halt funding of the war machine. Any measures cutting financing for Russia’s war on Ukraine are worth considering.
Secondary sanctions have been discussed by the US President and Congress, including proposals to sanction countries trading certain goods with Russia.
But first, we must see how this develops and if it becomes part of a broader negotiation with Russia. The US is negotiating with many countries on tariffs and market access. I always say: Let’s wait and see what happens before commenting on it.
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