Gold slips, USD surged on easing of Trump trade war tensions

 

·         Wall Street mixed, but hovering around a lifetime high; adjusted VAT/ST, US goods will face 21.5% and EU goods 22.5% total tax in each other country

·         Potential inflation would be higher in the US economy than in the EU, while GDP growth may be slightly affected more in the EU as a result of the US-EU trade deal

·         France may be affected more in the EU due to its reliance on agri/farm and luxury items exports to the US

·         Trump may extend tariff pause on China and even India for another 90 days, paving the way to open up both countries for US goods, including farm items

On July 27, 2025, the United States and the European Union reached a trade deal following intense negotiations, averting a potential trade war. The agreement, announced by U.S. President Trump and European Commission President Ursula von der Leyen (VDL) after a 40-minute meeting at Trump’s Turnberry golf resort in Scotland, imposes a 15% baseline tariff on most EU exports to the U.S., including cars and pharmaceuticals, which is half the 30% rate Trump had threatened to implement by August 1. Certain goods, such as aircraft, plane parts, specific chemicals, generic drugs, semiconductor equipment, and some agricultural products, are exempt from tariffs. However, steel and aluminum exports face a 50% tariff, a significant concern for the EU’s steel industry.

The EU agreed to purchase $750 billion in U.S. energy (oil, gas, nuclear fuel) over three years and invest $600 billion in the U.S., including in pharmaceuticals, automotive, and military equipment. This deal aims to stabilize the ~$1.76 trillion transatlantic trade relationships and reduce Europe’s reliance on Russian energy. While von der Leyen described it as a “huge deal” bringing “stability” and “predictability,” some European leaders expressed concerns about its asymmetry, as the EU faces higher tariffs than the U.S. on certain goods. For instance, France’s Benjamin Haddad noted the deal’s benefits, like exemptions for spirits, but called it “unbalanced.” Germany’s economy is expected to see a 0.15% drop in production, and the EU as a whole a 0.11% drop, according to the Kiel Institute.

The agreement is a framework, with technical details to be finalized in the coming weeks, requiring approval from EU member states. While it avoids the worst-case scenario of a 30% tariff, some EU countries, like Italy, view the 15% tariff as “sustainable” but are cautious about future tariff hikes if investment commitments are not met. The deal reflects a compromise after months of tense talks, with the EU initially hoping for a 10% tariff rate and facing challenges like Trump’s demands to weaken tech regulations and adjust trade imbalances.

Is Trump considering both VAT/GST and Tariffs while making trade deals with other countries?

The recent U.S.-EU trade deal announced on July 27, 2025, establishes a 15% baseline tariff on most EU exports to the U.S. and a 0% tariff on many U.S. exports to the EU. However, the topic of VAT/GST has surfaced in discussions around trade policy, particularly in the context of reciprocal tariffs and addressing trade imbalances.

Will US Goods in the EU face a total ~21.50% tax (0% tariffs +21.5% VAT)?

The deal specifies that U.S. goods entering the EU face a 0% tariff for many products, though specific exemptions and rates for certain goods (e.g., steel at 50%) apply. However, VAT is typically applied to imports in the EU at the destination country’s rate, which varies but averages around 21.5% across member states (e.g., 20% in France, 19% in Germany, 22% in Italy). This VAT is separate from tariffs and is levied on the value of goods (including any applicable tariffs) at the point of entry or sale. The trade deal does not mention altering VAT policies, so it’s reasonable to assume U.S. goods would still be subject to the EU’s standard VAT rates, approximately 21.5% on average, unless specific exemptions are negotiated later. As of now, US goods into the EU will face a total ~21.5% tax (0.00% tariffs + 21.5% VAT).

Will EU Goods in the US face a total ~22.50% tax (15% tariffs +7.5% sales tax)?

EU goods entering the U.S. face a 15% baseline tariff under the new deal (with exemptions for certain goods like aircraft and higher tariffs for steel/aluminum at 50%). In the U.S., there is no federal sales tax equivalent to VAT, but state-level sales taxes apply to many goods at the point of sale, averaging around 7.5% across states (e.g., 6.25% in Texas, 8.875% in New York). These taxes are applied on top of the import price, which includes the 15% tariff. The trade deal does not indicate any changes to U.S. state sales tax policies, so EU goods would likely face this additional 7.5% average sales tax after the 15% tariff is applied at the border. As of now, EU goods into the US will face a total ~22.5% tax (15% tariffs + 7.5% VAT).

The U.S.-EU trade deal, announced on July 27, 2025, has significant implications for various sectors on both sides of the Atlantic.

United States: Sectoral Winners

Energy Sector (Oil, Gas, LNG, Nuclear Fuel): The EU’s commitment to purchase $750 billion in U.S. energy over three years significantly boosts U.S. energy producers. Companies like Cheniere Energy and Venture Global saw stock price increases in Monday trading following the deal’s announcement, reflecting market confidence in increased demand for U.S. liquefied natural gas (LNG) and other energy exports. The 0% tariff on U.S. energy exports to the EU, combined with the EU’s push to reduce reliance on Russian energy, ensures strong market access. The effective tax rate on U.S. energy goods in the EU remains at ~21.5% (EU VAT), with no additional tariff burden. This aligns with Trump’s strategy to leverage U.S. energy dominance in trade negotiations, strengthening the sector’s export potential.

Aerospace (Aircraft and Plane Parts): U.S. aerospace companies, such as Boeing, benefit from tariff exemptions on aircraft and plane parts entering the EU, maintaining cost competitiveness. The 0% tariff ensures U.S. aerospace exports face only the EU’s ~21.5% VAT, avoiding additional barriers. The EU’s $600 billion investment commitment may also include aerospace-related projects, further supporting the sector. Aerospace is a strategic sector, and exemptions reflect mutual U.S.-EU interest in maintaining robust supply chains.

Pharmaceuticals and Chemicals: U.S. pharmaceutical and chemical industries gain from tariff exemptions on exports to the EU, ensuring stable access to a key market. The 0% tariff, with only ~21.5% EU VAT applied, keeps U.S. products competitive. The EU’s $600 billion investment in U.S. pharmaceuticals could drive further growth through joint ventures or R&D. These exemptions protect high-value industries critical to U.S. economic interests.

Military Equipment: U.S. defense contractors benefit from the EU’s $600 billion investment commitment, which includes military equipment. Tariff exemptions or favorable terms (not explicitly detailed) and increased EU investment in U.S. military sectors enhance export and collaboration opportunities. Geopolitical alignment and NATO considerations likely influenced this provision, strengthening U.S. defense firms.

European Union: Sectoral Winners: 

Agricultural Products (Selected): Certain EU agricultural products are exempt from U.S. tariffs, allowing continued access to the U.S. market with only ~7.5% average U.S. state sales tax applied (no tariffs, so effective tax rate is ~7.5% for exempt goods). Exemptions reflect U.S. demand for specific EU agricultural goods (e.g., French spirits, as noted by France’s Benjamin Haddad) and aim to balance trade concessions. While not all agricultural products are exempt, key subsectors benefit, mitigating broader losses.

Spirits and Wine: Specific exemptions for EU spirits (e.g., French cognac, Irish whiskey) ensure these products face only U.S. sales taxes (~7.5% average), avoiding the 15% baseline tariff. The U.S. market is significant for EU spirit producers, and exemptions prevent price hikes that could reduce competitiveness. France’s positive remarks on the deal highlight spirits as a protected sector.

European Union: Sectoral Losers

Automotive Industry: European automakers, such as BMW and Mercedes, experienced stock price declines following the deal’s announcement, reflecting the burden of the 15% U.S. tariff on car exports. The 15% tariff, combined with ~7.5% U.S. state sales tax, results in an effective tax rate of ~22.5%, increasing costs for EU vehicles in the U.S. market and reducing competitiveness against U.S. or tariff-exempt competitors. Germany’s automotive sector, a major EU export driver, faces significant challenges, contributing to the projected 0.15% production drop in Germany.

Steel and Aluminum Industry: The EU steel and aluminum sectors face a steep 50% U.S. tariff, significantly raising export costs and threatening market share. The high tariff, plus ~7.5% U.S. sales tax, results in an effective tax rate of ~57.5%, making EU metals far less competitive in the U.S. This aligns with Trump’s protectionist stance on U.S. manufacturing. The EU steel industry is a major loser, with potential ripple effects on industrial supply chains.

Non-Exempt Manufacturing and Consumer Goods: EU manufacturers of goods subject to the 15% U.S. tariff (e.g., machinery, electronics, non-exempt chemicals) face higher costs, with an effective tax rate of ~22.5% (15% tariff + 7.5% sales tax). These sectors lack exemptions, increasing export prices and potentially reducing U.S. market share. The broader EU economy faces a 0.11% production drop, with non-exempt sectors bearing much of the burden.

France is not happy with the US-EU trade deal: French leaders (Bayrou, Macron) have been the most critical, calling the deal a “dark day” and “submission,” reflecting France’s perceived economic hit. Germany and Italy, while affected, expressed cautious optimism, suggesting less severe perceived impacts.

High Value Luxury goods: France is a major EU exporter to the U.S., particularly in high-value agricultural products (e.g., wines, spirits, and cheeses) and high-value fashion products (e.g., cosmetics, perfumes, luxury goods like handbags and apparel). The U.S. is France’s fourth-largest customer, with key sectors like wines/spirits, pharmaceuticals, and luxury goods accounting for over a third of its $37.6 billion in goods exports to the U.S. in 2023. French agricultural exports, especially wines, spirits, and cheeses, are significant to the U.S. market. In 2024, EU alcoholic beverage exports to the U.S. were worth ~€9 billion, with spirits alone at €2.9 billion, a substantial portion from France (e.g., cognac, champagne.

Pre-deal, EU agricultural goods faced varying U.S. tariffs, averaging ~1.47% for EU goods overall but higher for specific products like beverages (2-5% depending on the category). A prior 2019-2021 trade dispute saw U.S. tariffs of 25% on French wines and cognac, causing a 40% export plunge and €500 million in losses for the French spirits industry.

Exemptions: The deal exempts certain agricultural products from the 15% tariff, notably French spirits (e.g., cognac, champagne), which face only the ~7.5% U.S. sales tax, a significant relief compared to the 25% tariffs in 2019-2021. Other exempt products include cork (used in wine bottles), but the full list of duty-free agricultural goods (e.g., nuts, processed fish, dairy, pet food) is still being finalized.

Non-Exempt Agricultural Goods: Non-exempt products like cheeses, pasta, and other agro-food items face the 15% tariff, increasing their effective tax rate to ~22.5% (15% + 7.5% sales tax). The French agro-food industry body ANIA denounced this as a “brutal tariff shock,” noting that 7% of French agro-food exports go to the U.S., a strategic market. This tariff hike (from ~1.47% pre-deal) could reduce competitiveness, particularly for high-value products like cheeses, which faced price hikes in prior tariff disputes. The 15% tariff on non-exempt agricultural goods could lead to reduced export volumes and revenue losses, similar to the €500 million hit in 2019-2021. French Prime Minister François Bayrou called the deal a “dark day” for the EU, reflecting concerns about agricultural losses.

Italy: Italy exports high-value agricultural goods like wines, cheeses, and olive oil (€65 billion total exports to the U.S. in 2024). Non-exempt products face the 15% tariff, but Italy benefits from exemptions for some agricultural goods (e.g., cork) and has a less vocal response than France, with Prime Minister Giorgia Meloni welcoming the deal.

Germany: Germany’s agricultural exports to the U.S. are less significant than its automotive and chemical sectors (€161 billion total exports in 2024). Agricultural products face similar 15% tariffs on non-exempt goods, but Germany’s smaller exposure in high-value agro-food (e.g., fewer wine/spirit exports) means less impact compared to France.

Ireland: Ireland’s agricultural exports (e.g., dairy, whiskey) are significant, with exemptions for spirits but 15% tariffs on non-exempt goods like cheeses. However, Ireland’s primary exposure is in pharmaceuticals (55% of its $72 billion exports to the U.S.), not agriculture, reducing its agricultural impact relative to France.

United States: Sectoral Losers

Consumer Goods (Indirect Impact): U.S. consumers and businesses importing EU goods face higher prices due to the 15% tariff (or 50% for steel/aluminum), with costs passed through via the ~22.5% effective tax rate on most EU goods. Tariffs increase the cost of EU imports, potentially raising retail prices for U.S. consumers in sectors like automotive, electronics, and metals. While U.S. industries are largely protected, consumers bear some economic burden, consistent with analyses estimating a ~$2,100 tax increase per U.S. household in 2025 due to broader tariff policies. Potential higher costs of living as a result of Trump tariffs may cause subdued US discretionary consumer spending.

Potential impact of inflation would be higher in the US economy than EU:

The U.S.-EU trade deal, announced on July 27, 2025, has significant economic implications for both the United States and the European Union, shaped by its tariff structure, investment commitments, and broader trade dynamics. The potential economic impacts on both sides of the Atlantic; inflation may be higher in the U.S. than the EU, as the net tariffs increase would be ~12% for EU goods in the US against a reduction of ~3% for US goods in the EU. Before Trump 2.0, the US and EU had ~3% tariffs on each other. During Trump 2.0, US tariffs on EU goods were ~10% baseline from April-July’25.

The 15% tariff from August’25 on most EU goods and 50% on steel/aluminum increases the cost of imported EU products (e.g., cars, machinery, metals), with an effective tax rate of ~22.5% (tariff + 7.5% average U.S. state sales tax) or ~57.5% for steel/aluminum. Various sources indicate that ~50% of tariff incidence falls on U.S. consumers and ~40% on US importers, raising prices for goods like European cars (e.g., BMW, Mercedes) and industrial inputs; 10% of the Trump tariff burden may be borne by global exporters.

The Tax Foundation estimates Trump’s tariff policies, including this deal, could increase U.S. consumer prices by ~1-2% annually, contributing to a $2,100 tax increase per household in 2025. Higher input costs for U.S. manufacturers reliant on EU steel/aluminum could further drive inflation in downstream industries (e.g., construction, automotive). U.S. consumers face higher prices for EU imports, reducing purchasing power, particularly for luxury goods like European cars or specialty products. Businesses importing EU components (e.g., steel for manufacturing) face increased costs, potentially reducing profitability or prompting price hikes, exacerbating inflation.

While the deal boosts specific sectors, the broader economic impact may be mixed. The Kiel Institute’s estimates focus on EU losses, but U.S. GDP growth could be tempered by inflation and reduced import competition, which may stifle innovation in some sectors. The Tax Foundation suggests Trump’s tariffs could reduce U.S. GDP by 0.2-0.5% over the long term if trade partners retaliate or trade volumes decline.

The US inflation will be higher in the U.S. is plausible, as tariffs directly increase import costs, and the U.S. relies on EU goods for key sectors (e.g., automotive, machinery). The EU’s lower tariff exposure (0% on many U.S. goods) limits its inflationary pressure compared to the U.S., where the 15% and 50% tariffs on EU goods amplify price increases. The U.S. inflation could rise 1-3% due to tariffs.

Economic Impact on the EU may be higher than in the US:

The Kiel Institute estimates the deal will reduce EU production by 0.11% overall, with Germany facing a 0.15% production drop due to its reliance on automotive and industrial exports. The 15% U.S. tariff on cars and machinery and 50% on steel/aluminum increase export costs, with an effective tax rate of ~22.5% or ~57.5%, respectively, reducing EU competitiveness in the U.S. market. European automakers (e.g., BMW, Mercedes) saw stock price declines, reflecting market concerns about reduced U.S. sales. The steel and aluminum industries face significant losses, as the 50% tariff makes EU metals uncompetitive, potentially shifting U.S. demand to domestic or other global suppliers.

The EU’s $600 billion investment commitment in U.S. sectors (pharmaceuticals, automotive, military equipment) diverts capital from domestic EU projects, potentially straining budgets in member states. Some EU leaders, like France’s Benjamin Haddad, call the deal “unbalanced,” as the EU faces higher tariffs and investment obligations while U.S. goods enter the EU at 0% tariffs for many sectors.

Inflationary Pressure (Limited): Unlike the U.S., the EU faces lower inflationary pressure from the deal, as U.S. goods enter at 0% tariffs for many sectors, with only the ~21.5% VAT applied. This keeps U.S. imports (e.g., energy, aerospace) affordable, mitigating price increases. However, higher costs for EU exports to the U.S. could reduce export revenues, indirectly affecting economic growth and investment capacity. The US goods will face 0% tariffs in the EU against the earlier 3%; i.e., US goods may be comparatively cheaper. Both before and after the deal, U.S. goods face the EU’s ~21.5% average VAT on top of any tariffs. Pre-deal, the effective tax rate was ~24.5% (3% tariff + 21.5% VAT, assuming a 3% average tariff). Post-deal, for exempt goods, it’s ~21.5% (0% tariff + 21.5% VAT), a slight reduction.

The deal boosts GDP through energy exports and EU investments, potentially adding 0.1-0.3% to U.S. GDP annually (based on similar tariff-driven trade deals), but inflation from higher import costs could offset gains. Higher U.S. inflation (1-3%) is driven by the 15% and 50% tariffs on EU goods, raising consumer and input costs. This contrasts with the EU’s lower inflationary pressure. The Kiel Institute’s 0.11% EU-wide and 0.15% German production drop reflects losses in automotive and steel sectors, with export revenues declining due to U.S. tariffs. Inflation: Lower than in the U.S., as 0% tariffs on U.S. goods limit price increases, though reduced export earnings could constrain growth.

Conclusions:

Overall, despite Trump/US heavy headline about the trade deal and an apparent ‘surrender’ of the EU, in reality VAT/sales tax adjusted US goods will face ~21.5% tariffs in the EU vs ~25.0% prior (VAT 21.5% in EU; prior tariff 3.5%), while EU goods will face ~22.5% net tax (15% tariff +7.5% sales tax) in the US vs prior 10% (2.5% tariffs +7.5% sales tax). Thus, the inflationary impact on the US economy would be higher than EU, although theoretically, the EU economic growth could suffer slightly. But it will also be a big question whether EU consumers will boycott US goods, as we have seen in various US allies including Canada amid Trump’s bellicose policies and comments.

Market impact:

On Monday, July 27, USD surged, while Gold eased on easing of Trump trade war tensions after the US-EU trade deal, followed by another report that US-China tariff pause may be extended by another 90 days to October’25 or even December’25. Wall Street Futures surged initially, but stumbled later as the fine print of the US-EU trade deal shows adjusted VAT, no one can claim major beneficiary. And the deal may have a more inflationary impact on the US rather than the EU.

The S&P 500 finished slightly higher at record levels; the Nasdaq 100 added 0.3% to extend its record close, while the Dow slipped 64 points. Wall Street was boosted by energy, techs, and consumer discretionary, while dragged by real estate, materials, utilities, consumer staples, healthcare, financials, industrials, and communication services. Energy stocks led by Exxon Mobil and Chevron as oil surged on the US-EU trade/energy deal and Trump’s secondary sanction threat on Russia, if Putin does not go for the Ukraine war ceasefire within the next 10-12 days, instead of the earlier narrative of 50 days. Dow Jones (DJ-30) was boosted by NVIDIA, Boeing, IBM, Nike, Chevron, and J&J, while dragged by Travelers, Amgen, Verizon, Coca-Cola, and. J&J.

Weekly Technical outlook: DJ-30, NQ-100, SPX-500 and Gold

Looking ahead, whatever may be the narrative, technically Dow Future (CMP: 44800) now has to sustain over 45000 for a further rally towards 45300*/45800* and only sustaining above 45800, may further rally to 46100/46500-47100/47200 in the coming days; otherwise sustaining below 44950, DJ-30 may again fall to 44200/43900-43400/42400 and 41700/41200-40700/39900 in the coming days.

Similarly, NQ-100 Future (23000) now has to sustain over 23100 for a further rally to 23300/23600*-23800/24000 and 24100/24450-24700/25000 in the coming days; otherwise, sustaining below 22900, NQ-100 may again fall to 2400/22200-21900/20900-20700/20200 and 19890/18300-17400/16400in the coming days.

Looking ahead, whatever may be the fundamental narrative, technically SPX-500 (CMP: 6300) now has to sustain over 6450-6500 for a further rally to 6600/7000-7500/8300 in the coming days; otherwise, sustaining below 6375/6300-6250/6200, SPX-500may again fall to 6000/5800-5600/5300 in the coming days.

Technically Gold (CMP: 3350) has to sustain over 3375-3395 for a further rally to 3405/3425*-3450/3505*, and even 3525/3555 in the coming days; otherwise sustaining below 3365-3360, Gold may again fall to 3340/3320-3300*/3280 and 3255*/3225*-3200/3165* and further to 3130/3115*-3075/3015-2990/2975-2960*/2900* and 2800/2750 in the coming days.

 

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