Dollar’s Worst Performance in 50 Years Amidst EU-US Trade Standoff

The dollar has posted its worst performance in 50 years during the first half of the year, a direct consequence of the uncertainty created by the impending EU-US trade talks and President Trump’s July 9th tariff deadline. With only two days left to secure a deal, the European Union faces the threat of 50% tariffs on its imports, and potentially 70% on others. This volatile situation has also led to businesses worldwide pausing investments. The EU is in a dilemma: pursue a deal at any cost or stand firm against an unfavorable agreement.
US Treasury Secretary Scott Bessent confirmed that negotiations, which continued over the weekend, are focused on securing a range of agreements with important partners. The aggressive stance of the Trump administration, with Trump once labeling the EU “nastier than China,” has been a consistent feature of these talks. A recent illustration of this aggression was the threat of 17% tariffs on EU food imports made to Trade Commissioner Maroš Šefčovič during talks with senior US officials. The 90-day pause on “liberation day” tariffs, announced on April 2nd, is due to expire this Wednesday, with only the UK and Vietnam having secured agreements thus far.
The impending deadline raises questions about the EU’s ability to achieve anything more than a “political framework agreement” to extend talks, potentially leaving the existing 10% baseline tariff and other levies on cars, steel, and aluminum in place. European industries are bracing for increased costs, anticipating a minimum 10% tariff on exports to the US, a significant five-fold increase from the 2% average before Trump’s election last year. This strategic shift follows the EU’s acknowledgment that a comprehensive trade deal is no longer attainable.
Consequently, the EU is now aiming for an agreement in principle, or a “framework deal,” similar to the one recently implemented with the UK. While EU diplomats initially dismissed the UK deal as inadequate and potentially non-compliant with WTO rules, and had hoped their greater economic scale would secure a better outcome, they now recognize that a minimalist deal may be the most achievable outcome under the circumstances.