European Parliament's political groups agree EU-US trade deal

European Parliament political groups agreed on legislation to implement the EU‑US trade deal struck in July 2025, specifying US tariffs of 15% on EU exports while the EU would cut tariffs on US goods to zero. The package — which includes a sunset clause expiring end‑March 2028, a suspension clause for violations, a safeguard mechanism, and automatic reintroduction of tariffs if the US fails to cut tariffs to 15% on a list of 400+ steel‑related products — will be voted by the International Partnership Committee on Feb. 24 and in Plenary as early as March and still requires negotiation with EU member states for final terms.

Analysis

Market structure: The deal rebalances margins: US goods gain tariff-free access to the EU (benefitting US exporters in machinery, agriculture and parts — e.g., CAT, DE, ADM), while EU exporters to the US (autos, aerospace: VWAGY, BMWYY, EADSY) face a 15% price shock. Expect an immediate competitiveness shift: GDP-exposed EU exporters could see revenue pressure of ~10–20% on affected SKUs within 6–12 months if pass-through is full; EU manufacturers using US inputs could see 1–3% margin improvement from lower input tariffs.

Risk assessment: Key tail risks are political escalation (new ad-hoc US tariffs or sanctions), non-compliance on the US steel list triggering automatic EU retaliation, and member-state carve-outs during EU country negotiations. Short-term catalyst windows are Feb 24 committee and March plenary (days–weeks); medium-term event is US implementation of the 15% steel tariff reduction (watch through June 30, 2026); long-term uncertainty caps at the March 2028 sunset.

Trade implications: Tactical winners are US industrials and commodity processors; tactical losers are EU exporters to the US, particularly autos and aerospace. FX and bonds: expect EUR downside vs USD and marginal widening of peripheral EU credit spreads if export shock persists; steel prices will be sensitive to the June compliance threshold. Timing: act pre-March vote for directional trades, de-risk after Plenary and again after June steel compliance.

Contrarian angle: Consensus overlooks domestic EU benefits from cheaper US inputs and the 2028 sunset, which limit permanent damage; political negotiation risk could dilute terms, creating asymmetric payoffs. Historical parallel: 2018 US steel tariffs showed rapid price passthrough and quick political pushback — prepare for cliff events and reversals rather than monotonic trends.

Key Decisions for Investors

• Establish a 1.5% net short position split equally in VWAGY and BMWYY (0.75% each) ahead of the March plenary; target 10–15% downside within 3–6 months, place an automated stop-loss at an 8% adverse move.
• Establish a 2–3% long position in US industrial exporters: CAT (1.5%) and DE (1.5%) sized for 6–12 months; target 15–25% upside if EU share losses materialize, with a 10% stop-loss.
• Buy 3-month BMWYY puts (May 2026 expiry) ~10% out-of-the-money sized 0.5–1% notional to hedge the short; simultaneously buy 3-month ATM calls on CAT (May 2026) sized 0.5–1% to lever the upside exposure.
• Initiate a 0.5–1% macro hedge: short EUR/USD (via forward or FX spot) if EUR/USD breaks and holds below 1.05 after the March plenary; monitor US compliance on the 400-item steel tariff reduction by June 30, 2026 — if noncompliant, reduce US-industrial longs by half and close EU-auto shorts.