10:25 AM EDT, 07/28/2025 (MT Newswires) -- In a Sunday meeting between United States President Donald Trump and European Commission President Ursula von der Leyen in Scotland, the U.S. and the EU finalized their bilateral trade negotiations, noted UBS.

The bank expects the U.S.-EU trade deal to lead to relief that a damaging tariff escalation, which the EU had prepared for, will now be averted. Also, the EU firms will get a better basis to plan.

That said, in the absence of a common statement by both the U.S. and the EU, UBS remains somewhat concerned over ambiguities, which could point to different interpretations of what has been agreed. For example, Secretary of Commerce, Howard Lutnick, said the U.S. government's 232 investigation into the semiconductor industry could lead to new sectoral tariffs being imposed in two weeks.

The bank understands that Sunday's deal is a framework agreement, some details of which still have to be finalized.

Importantly, while the deal reduces uncertainty and the risk of an escalation, it cements a marked deterioration in European firms' export conditions to the U.S, stated UBS. Based on the statement by von der Leyen, which suggested that the 15% rate will apply to most sectors, including cars (previously 27.5%) and pharmaceuticals (previously 0%), while all aircraft and component parts will be subject to 0%, the bank calculates that EU exports to the U.S. will now face a weighted average tariff rate of 15.2%.

While the UBS estimate is subject to some uncertainty, it is clear that the new tariff rate is significantly higher than the roughly 1.5% that was in place before April 2. So far, the bank's baseline has assumed a weighted average tariff or around 11%, so Sunday's trade deal, pointing to a tariff of around 15% is worse than UBS had assumed.

According to the bank's previous work, U.S. tariffs of 10%, 20% or 30% would lower eurozone growth by 0.2pp, 0.4pp or 0.6pp, respectively (cumulatively over four quarters). However, the risk would be skewed to the upside, due to negative confidence effects on households and businesses.

Two weeks ago, UBS put its eurozone gross domestic product forecast under review, with the intention of revising its forecast after Q2 GDP data is released on Wednesday and greater clarity on U.S.-EU trade relations emerges.