The EU and U.S. are engaged in confidential negotiations over a potential trade framework aimed at shielding the European Union’s auto industry from escalating U.S. import tariffs, according to European officials and industry insiders.

The European Commission is seeking to finalize an outline of a trade agreement with the United States before the August 1 deadline set by President Donald Trump, who recently hinted at announcing new tariff rates on EU exports within days.

Among the options being considered are import quotas, reductions in existing tariffs, and an export credit system that would allow EU automakers to offset U.S. import duties. These discussions follow a series of tariff increases that have impacted the EU car industry, including a 25% additional levy on top of the pre-existing 2.5% tariff imposed on EU car imports since April.

Under one proposal, carmakers that export vehicles from U.S. manufacturing plants to other countries would receive credits equal to their export value. These credits could then be used to offset duties on vehicles imported from the EU, potentially benefiting manufacturers such as BMW and Mercedes-Benz, which have major export-oriented SUV production facilities in the U.S.

Sources indicate that incentives tied to additional local investment are also under consideration, terms that may appeal to Volkswagen, which is evaluating U.S.-based production for its Audi brand.

The discussions remain sensitive, with eight sources from both sides, comprising officials and industry representatives, requesting anonymity due to the confidential nature of the talks. Neither the European Commission nor the U.S. administration has formally commented.

EU Trade Commissioner Maros Sefcovic stated on Wednesday that progress had been made toward a framework deal, with optimism that an agreement could be reached soon.

The negotiations are reportedly considering models similar to the recent U.S.-UK agreement, in which Washington reduced tariffs to 10% and allowed an annual quota of 100,000 British-made cars at the lower rate. While the EU has proposed a comparable quota-based system, U.S. officials are reportedly hesitant to adopt this structure.

Trade data from the European Automobile

Manufacturers Association (ACEA) shows that the EU exported nearly 758,000 cars to the U.S. in 2024, valued at €38.9 billion ($45.6 billion), over four times the volume of U.S. cars shipped to Europe.

Also under discussion are potential reductions in current tariff rates, 27.5% for U.S. imports and 10% for EU imports, as well as regulatory alignment in areas like vehicle safety testing. These non-tariff measures are viewed as a means to facilitate smoother transatlantic trade in the automotive sector.

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