Taking one on the chin, avoiding a knock-out
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Article Type
Insights
Topic
Multi-Asset
Published
July 28, 2025
Read time
5 mins
Author
Jordy Hermanns, CFA
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The US and EU have reached a trade agreement that imposes a 15% baseline tariff on most EU exports to the US. In return, the EU commits to purchasing $750 billion in US energy products and investing $600 billion in the US, among other pledges. Our Eurozone growth outlook remains. We already accounted for a tariffs scenario, roughly similar to the current deal. We hold on to our 0.5% growth forecast for 2025.


What we know now

The deal sets a 15% tariff on a broad range of EU exports. This is significantly lower than the 30% threatened by Trump in a recent letter and below the 20% floated during “Liberation Day.”

In addition to the tariff framework, the EU has agreed to purchase $750 billion in US energy products and invest $600 billion in the US economy.

However, the agreement remains high-level. Neither side has published a written version, and interpretations appear to diverge on some topics.


Is This a Good Deal?

From the US perspective this appears to be a clear win. The US secures higher tariffs without facing retaliation by Europe. Trump fulfills his promise to restructure global trade in America’s favor. The EU, the largest source of US imports (approx. $300 billion annually) is now subject to a more restrictive trade regime.

From the EU perspective the deal is asymmetrical, disadvantaging Europe. Tariffs are significantly higher than at the start of the year—hence the title of this article: taking one on the chin, but not a knockout. On a positive note, a knockout scenario is avoided. The deal avoids a no-deal escalation, which would have been much more damaging to the European economy.

In a previous article, we argued that focusing solely on the trade balance offers an overly narrow view of the economic relationship between the US and Europe. Instead, we believe that the current account provides a more comprehensive and accurate measure, as it includes not only trade in goods and services but also income flows such as interest and dividends. From this broader perspective, the transatlantic economic relationship appears far more balanced. From that point of view, the relationship is much more in balance, and the asymmetrical trade deal is not a representation of that.

We argue that the early conclusion of deal is like the title of the article suggests. The deal avoids a knockout blow, but the eurozone still takes a hit. Avoiding a worst-case scenario is a relief, yet the economic impact is nonetheless painful—like taking one on the chin.


Economic Impact on Europe

Our estimates suggest that US tariffs will reduce euro area GDP by several tenths of a percent, primarily due to weaker foreign demand. This outcome was already factored into our forecasts.

At the start of the year, we expected growth in 2025 to be approximately 1%. In recent months, we incorporated a tariffs scenario. On a first glance, the current deal is roughly in line with our expectations, and we continue to expect 2025 growth to come in around 0.5% this year.

Figure 1: Eurozone Growth Expectations for 2025  


Source: Aegon AM. Data as per 07-2025.  


At times of writing, there is some unclarity around the tariffs on pharmaceuticals. It is not certain whether or not the 15% rate will apply to pharmaceuticals, regardless of the outcomes of the section 232 probe on pharmaceuticals. Given the size of the pharmaceutical exports to the US ($152 billion), we might have to adjust our growth expectations when we get more clarity on this topic.

While recent trade developments have weighed on eurozone growth, some positive signals have emerged in recent months. Notably, Germany’s investment initiative and increased commitments to defense spending offer potential upside. However, we believe these measures are unlikely to materially support growth in 2025. The first meaningful impact is expected to begin in 2026.

The deal does not alter our inflation outlook. We expect inflation to continue easing in the coming period.

Important information

Author

Jordy Hermanns, CFA
Portfolio Manager

Jordy Hermanns, CFA, is a portfolio manager in the multi-asset group and serves as an investment strategist in the asset allocation team.

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