US President Donald Trump has agreed to extend the 50% tariff deadline on the European Union (EU) until 9 July. Bloomberg reported that Trump and European Commission President Ursula von der Leyen had a “very nice call” on Sunday, 25th of May, that caused the delay. Von der Leyen said earlier on Sunday that the EU was ready to move quickly and decisively in trade talks with the US but needed more time to negotiate a deal.
Following US President Donald Trump’s extension of the 50% tariff deadline as well as continued US dollar weakness, the Euro/USD surged above 1.1400 in the European morning on Monday.
Trump’s tariff trade war and tax cut bill fuel economic worries
US President Donald Trump’s trade war and tax cut bill have generated worries about the economic health of the US. The USD remained subdued due to the political and fiscal headlines, while the euro resumed its bullish run. The euro increase was however limited by economic data, as European business output shrank more than expected in May, limiting EUR gains.
50% EU tariffs extended until 9 July
Trump told reporters that Von der Leyen requested the 9th of July as the date to move on with negotiations and reach an agreement.
However, earlier on Friday, Trump said he was “not looking for a deal” with the EU, and that their 50% tariff rate would go into effect on 1 June. Through a Truth Social post on Friday, he said that trade talks with the EU were in an impasse and underlined that the only purpose of the European Union was “to take advantage of the US on trade.” On Sunday, he backtracked.
Trump’s threat of 50% tariffs, made on Friday, represented a big escalation in the transatlantic trade war, and shocked European negotiators. The US president had paused his initial imposition of 20% tariffs against the EU in April, to begin a 90-day negotiation that was set to end on 9 July.
Replying to Trump’s threat on Friday, von der Leyen’s chief trade negotiator Maroš Šefčovič called for “mutual respect, not threats” and said Brussels would “defend our interests.”
Posting on X, after her “good call” with Trump, von der Leyen explained that “The EU and US share the world’s most consequential and close trade relationship,” and that “Europe is ready to advance talks swiftly and decisively. To reach a good deal, we would need the time until July 9.”
In response to the news, on Monday stock markets in Asia were slightly up, with Japan’s benchmark Nikkei 225 rising 0.8% in early trading, while South Korea’s KOSPI was up 0.9%. China’s Shanghai Composite Index rose 0.3%.
Countries running trade deficit with US
Trump has taken a critical stance against those countries that run trade deficits with the US. According to US Commerce Department data, in 2024, the US ran a $236 billion trade deficit with the EU.
In order to provide some background, we need to remember what Trump promised in his inaugural address, which was to reduce the US’s persistent trade deficit, which he blames for the decline in US industrial production and employment. For Trump, this deterioration is the result of his predecessors’ free-trading policies and foreign partners’ practices. To rectify this imbalance, he believes in imposing customs duties. While this policy appears to make sense, things are much more complex.
On Sunday, Trump also said he agreed with Treasury Secretary Scott Bessent’s comments on not needing to return textile manufacturing to the United States: “We’re not looking to make sneakers and t-shirts … we want to make military equipment,” Trump said. “We want to make big things. We want to do the ‘AI thing’ with the computers.”
Back on Friday, European Central Bank (ECB) President Christine Lagarde warned that international trade will be “changed forever” due to the trade tensions from Trump’s imposed tariffs on major trading partners. Lagarde noted that countries needed to question the links of dependence they have with each other and with the US.
If Trump proceeds with the 50% tariffs, the EU has set a €21bn package of tariffs on US items including maize, wheat, motorcycles and clothing, and an additional list worth €95bn of other targets including Boeing aircraft, cars and bourbon whiskey is also currently under discussion.
“One Big Beautiful Bill Act”
Trade tensions are not the only concern of investors. President Trump’s “One Big Beautiful Bill Act” is a major bill which will restructure taxes and government spending. Individual and corporation tax cuts within the bill will boost the country’s outstanding debt by between $3 and $5 trillion and have triggered fears about the future of the US economy. Last week, the bill passed the House of Representatives by a slim margin and has now moved to the Senate, which will discuss it in the next few days.
What’s in the bill?
A few of the proposed changes included in the 1,000-page long legislation are mentioned briefly below.
- Tax cuts
The Republican bill includes a total of $3.8 trillion in tax cuts.
- No taxes on tips or overtime
The bill includes no taxes on overtime earned between 2026 and 2028. The plan also includes the option to deduct interest on car loans.
- State and local tax deduction: SALT.
The 2017 tax cuts put a limit to the SALT deduction at $10,000. The bill plans to raise the cap to $40,000 for married couples that make up to $500,000.
- Changes to Medicaid
The bill includes several changes to Medicaid which will bring in hundreds of billions in savings through new work requirements. Beginning at the end of 2026, childless adults without disabilities would have to work 80 hours per month to qualify for benefits.
- Raise the debt ceiling by $4 trillion
Lifting the debt limit will allow the government to pay for programs that Congress has already authorised.
Tax cuts to cost $4.6tn in the next 10 years
This new tax and spending bill promises to reduce spending and lower taxes for families, but in reality, it includes some of the biggest deductions to the wealthiest Americans who will save hundreds of thousands of dollars a year in taxes. To compensate for the expense of tax reductions, Republicans are pairing the tax cuts with cuts to key government assistance programs, while tariffs are also hoping to bring in trillions of dollars to pay national debt. However, estimates show that Trump’s tariffs, including retaliatory tariffs, would only bring in around $3.1 trillion in the next 10 years. The 10% universal tariffs would create $2.17 trillion in revenue.
Disklaimer: This material is for general informational and educational purposes only and should not be considered investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked in this communication.
