Trump’s ‘Biggest Deal Ever’ Leaves Big Questions

Trump and European Commission President Ursula von der Leyen
Reuters
By Yuval Rosenberg and Michael Rainey

Happy Monday! This is a huuuge week in President Donald Trump's trade war, as his August 1 deadline for deals with dozens of countries looms on Friday. Trump on Sunday announced a preliminary deal with the European Union. In his typically modest fashion, Trump promptly called it "the biggest deal ever made." As Trump continues to put his stamp on the economy, we'll get a new read on GDP growth on Wednesday, and then Federal Reserve policymakers will weigh in on interest rates. And as August nears, this could also be a significant week in Congress's slow-moving push to fund the government for fiscal year 2026. Here's what you should know.

Trump's 'Biggest Deal' Brings Relief, but Leaves Lots of Questions

President Donald Trump said Sunday that the U.S. and the European Union have agreed to a general framework on trade in which the U.S. will impose a 15% tariff on most goods imported from Europe, while most American goods will be imported into the EU tariff-free, starting on August 1.

Appearing with European Commission President Ursula von der Leyen following talks at his private golf course in Turnberry, Scotland, Trump said the lopsided framework represents "the biggest of all the deals." Von der Leyen said the agreement will bring "stability" and "predictability" to trade between the regions.

In addition to general tariff levels, the EU agreed to purchase $750 billion in energy products from the U.S. and to invest $600 billion in the country, as well as to buy "vast amounts" of U.S.-made military equipment, Trump said.

Some details still need to be worked out, including the treatment of wine and spirits imported from the EU by U.S. firms. And the agreement does not alter the 50% tariff Trump has imposed on steel and aluminum imports.

Sigh of relief: Worried that Trump would impose a 30% tariff on goods from the EU, as he has threatened to do, many economists and business leaders breathed a sigh of relief at the 15% tariff agreed over the weekend.

On Monday, Trump eased concerns even further, telling reporters that, in general, the tariff rate "for the world" will be similar to the EU tariff.

"I just want to be nice," Trump said as he met with U.K. Prime Minister Keir Starmer. "I would say in the range of 15 to 20% ... probably one of those two numbers."

Still, even as analysts celebrated tariff levels that were lower than feared, plenty of economists said their basic warning - that tariffs are a tax paid by U.S. firms and consumers that inevitably slow the economy through some combination of higher prices and lower profits -still holds.

Economists at Bloomberg said they expect Trump's tariffs to shave $2 trillion off the global economy by 2027, relative to the pre-Trump-tariff baseline.

"It's becoming clear that President Trump's tariff negotiations are bad for investment," Daniel Harenberg, lead economist with Oxford Economics, told Bloomberg. "In the end, tariffs may not be as high as feared. Still, they are essentially a tax that puts sand in the wheels of supply chains and global trade."

According to an analysis by The Observatory of Economic Complexity, an economic simulator developed at MIT and highlighted by CNBC, Trump's tariffs are forecast to reduce imports into the U.S. in 2027 by 46% relative to the current baseline, or $2.68 trillion. U.S. exports are forecast to grow, but by a smaller percentage, 12%, worth about $1.59 trillion. The overall effect is a reduction in total trade between the U.S. and its partners, though the specific levels will likely change as more details about Trump's global tariffs are known after August 1.

Question about big investments: The tariff on EU imports is the same as the tariff announced last week on Japanese imports, and both regions agreed to invest hundreds of billions of dollars in the U.S. economy. However, questions have arisen about the nature of those investments, with skeptics suggesting that the numbers are grossly inflated.

Although Trump said that Japan has agreed to invest $550 billion in the U.S. - a number that appears to have increased significantly as Trump wielded his Sharpie pen shortly before the announcement - Japanese officials are now saying that only 1% to 2% of that total represents direct investment. The vast majority will come as loans, said Ryosei Akazawa, Japan's chief negotiator.

Akazawa also said the loans will not be limited to Japanese firms building facilities in the U.S. but could be used to jointly invest in projects originating from other countries, as well. He cited a possible investment in new Taiwanese semiconductor factories as an example.

Some analysts say they doubt a joint U.S.-Japanese investment fund will ever amount to much. Takahide Kiuchi, executive economist at Nomura Research Institute, said the investment idea is more of a target than a binding promise.

"In reality, under the Trump administration, many Japanese companies likely view the business environment in the U.S. as deteriorating due to tariffs and other factors," Kiuchi said, per Fortune. "Furthermore, at current exchange rates, labor costs in the U.S. are extremely high, providing little incentive for Japanese firms to expand investment there. If anything, we may see a stronger trend toward diversifying investments away from the U.S."

Brad Setser, an economic fellow at the Council on Foreign Relations who served as an adviser to the U.S. Trade Representative from 2021 to 2022, said on social media that he has "a feeling that there is a lot less here than meets the eye," and that any eventual Japanese investments may have occurred with or without the agreement. "Odds are it is vapor ware," he said.

Questions also quickly emerged about the EU's pledge to invest $600 billion in the U.S. economy. EU officials said Monday that any investment money would have to come from private companies, which the EU has no power to control.

"It is not something that the EU as a public authority can guarantee," the officials told Politico. "It is something which is based on the intentions of the private companies." The officials added that the investment figure came from discussions with European firms about "what their investment intentions are."

Nils Redeker, an analyst at the Jacques Delors Centre think tank in Berlin, said skepticism is warranted. "This part of the deal is largely performative," he told Politico. "[The EU] is not China, right? So nobody can tell private companies how much they invest in the U.S."

EU Tariff Could Add $19 Billion to Pharmaceutical Costs: Report

The trade agreement between the U.S. and the EU could cost the pharmaceutical industry as much as $19 billion, according to research by Courtney Breen, a stock analyst at Bernstein. Although drugmakers may be able to absorb some of those costs, it seems likely that at least some portion of the tariff cost will end up in higher prices for consumers.

In the past, medicines have been exempt from tariffs, and as Reuters reports Monday, pharmaceuticals are the single most valuable category of European imports to the U.S., with about 60% of drug imports coming from the EU.

As high as the potential cost from the 15% tariff may be, President Trump has threatened to impose a 200% tariff on drugmakers to force the pharmaceutical industry to relocate to the U.S. Responding to that pressure, British-Swedish drugmaker AstraZeneca announced last week that it plans to invest $50 billion in the U.S. by 2030.

With Recess Looming, Senate Eyes Appropriations Push

The House has already started its August recess. The Senate is scheduled to begin its own summer break later this week, but Republicans have been under pressure from President Donald Trump to stay in session through August and plow through a backlog of nearly 150 nominations needing to be confirmed. Senate Majority Leader John Thune has reportedly told senators they should plan to stick around through the weekend.

The Senate certainly has plenty of business to tackle. Thune reportedly is also looking to get the first appropriations "minibus" - a bundle of three (or possibly four) spending bills - passed by the end of the week. The package would fund the departments of Commerce, Justice, Agriculture and Veterans Affairs, along with the Food and Drug Administration and military construction projects.

"Republican leadership still believes it can pass the mini-bus before leaving town," Politico reports, adding that "one potential fallback option, according to two people granted anonymity, could be for the Senate to schedule a final passage vote before they leave town for the first week back in September."

Trump Admin Releasing $5.5 Billion in Frozen Education Funds

The Trump administration said Friday that it is releasing $5.5 billion in education funding that it was withholding as part of a review meant to align spending with White House priorities.

The administration had frozen nearly $7 billion in money for public schools just before a July 1 deadline. The freeze included funds for teacher education, English language programs, arts and music education in low-income districts and other programs. It came just weeks before the new school year was scheduled to begin, prompting widespread, bipartisan concern and several lawsuits as lawmakers and others pushed for the administration to release the money appropriated by Congress.

Ten Senate Republicans led by Shelley Moore Capito of West Virginia wrote to White House budget director Russell Vought earlier this month calling for the congressional funding to be implemented. "The decision to withhold this funding is contrary to President Trump's goal of returning K-12 education to the states," they wrote. "This funding goes directly to states and local school districts, where local leaders decide how this funding is spent, because as we know, local communities know how to best serve students and families."

The letter also pushed back on White House claims that the funding was going to subsidize a "radical left-wing agenda."

The administration previously said it would release $1.3 billion of the funding. Friday's announcement covers the remaining federal funding that the administration had blocked.

Sen. Patty Murray of Washington, the top Democrat on the Senate Appropriations Committee, said the White House had created an entirely unnecessary problem for schools with its delay. "Instead of spending the last many weeks figuring out how to improve after-school options and get our kids' reading and math scores up, because of President Trump, communities across the country have been forced to spend their time cutting back on tutoring options and sorting out how many teachers they will have to lay off," Murray said in a statement. "This administration deserves no credit for just barely averting a crisis they themselves set in motion. You don't thank a burglar for returning your cash after you've spent a month figuring out if you'd have to sell your house to make up the difference."

The bottom line: This batch of funding will be released, but the Trump administration still has its sights set on dismantling the Department of Education and cutting federal funding for certain educational programs.

Number of the Day: $???

President Trump was delighted to accept a luxury jumbo jet donated at no cost by Qatar earlier this year for use as Air Force One, but it will be anything but free to transform the plane into the highly customized conveyance that the commander in chief needs to travel the world. According to a report Monday by David E. Sanger and Eric Schmitt of The New York Times, the cost of refurbishing the jet is classified, but a mysterious recent internal transfer of $934 million within the Department of Defense likely includes some or all of the necessary funding.

Sanger and Schmitt say the transfer came from "one of the Pentagon's most over-budget, out-of-control projects - the modernization of America's aging, ground-based nuclear missiles." Air Force officials have reportedly admitted that the renovations to the Qatari plane are being paid for from the nuclear modernization program.

"Only at the Pentagon could someone reprogram $934 million and expect no one to notice," Sanger and Schmitt write. "The coffers were refilled with the passage of the budget reconciliation bill several weeks ago, budget officials say."

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