Summary of EU Trade Deal Suspension and Market Reaction
On February 23, 2026, the European Parliament announced the suspension of the ratification process for the EU-US trade agreement, known as the "Turnberry Agreement." This decision reflects a significant deterioration in transatlantic relations, primarily triggered by a recent ruling from the US Supreme Court.
Background of the Situation
The Supreme Court ruled on February 20, 2026, that President Donald Trump had overstepped his executive authority by imposing tariffs under the International Emergency Economic Powers Act (IEEPA). The court's decision, which passed with a 6-3 majority, stated that the power to impose tariffs is constitutionally reserved for Congress. This ruling nullified tariffs that had generated substantial revenue and were projected to continue doing so in the future.
Trump's Response
In response to the Supreme Court's ruling, President Trump quickly invoked a rarely used provision of the Trade Act of 1974, specifically Section 122, to impose a new global tariff of 10%, which he later increased to 15%. This new tariff is set to take effect on February 24, 2026, and can remain in place for 150 days without Congressional approval. Trump's combative rhetoric included disparaging remarks about the dissenting justices and threats of higher tariffs for nations that challenge the new measures.
European Reaction
The European Parliament's Trade Committee, led by Bernd Lange, convened an emergency meeting to discuss the implications of Trump's actions, questioning whether the new tariffs constitute a breach of the Turnberry Agreement. Concerns were raised that the new 15% tariff could be applied in addition to existing Most-Favoured-Nation (MFN) rates, potentially leading to effective tax rates on EU exports exceeding 30%. The European Commission emphasized the importance of adhering to agreements, warning that unpredictable tariffs could destabilize markets.
Market Impact
Financial markets reacted swiftly to the escalating trade tensions, with gold prices surging nearly 2% as investors sought safe-haven assets amidst the uncertainty. The EUR/USD exchange rate and European equity indices remained relatively stable, indicating that markets were still assessing the full implications of the new tariff structure.
Outlook
The coming weeks are expected to be critical as the US House of Representatives has shown signs of opposition to the tariffs, particularly regarding Canada. However, President Trump appears resolute in his approach, posing a significant risk to European exporters and the broader economic outlook for 2026.