The United States and the European Union are close to a trade deal, with diplomatic sources in Brussels reporting that tariffs are expected to be set at 15%.

According to a report in the Financial Times, this is a similar type of agreement to the one announced today between the US and Japan. In the case of the agreement with the EU, tariffs are expected to be eliminated on certain products including aircraft, alcoholic beverages and medical devices.

It is noted, however, that a US official told the FT that the situation with the negotiations remains fluid and therefore may change. In parallel, as noted, Brussels will continue to process the package of tariff countermeasures worth 93 billion euros (30% tariffs) in the event that there is ultimately no agreement with Washington by August 1.

Wall Street's major indexes reacted positively shortly after the news of an imminent deal. The Dow Jones industrial average rose 158.7 points, or 0.36%, to 44,661.12. The S&P 500 rose 17.3 points, or 0.27%, to 6,326.9, while the Nasdaq Composite rose 73.8 points, or 0.35%, to 20,966.467.

The agreement with Japan and the gains for the US

Japan currently has the best – or more accurately the least burdensome – agreement with the US, compared to other countries with large trade surpluses with the US. The overall tariff rate that will be imposed on Japanese products is close to 15%, higher than the 10% applicable to the UK, but, as the BBC notes, Britain does not maintain a trade surplus with the US.

This is a victory for the Trump strategy – especially if Japan proves to be the first domino that will lead other countries to give in to US pressure. The initial anger of the Japanese negotiators had caused a sensation among Washington diplomats, who were used to the excessive politeness of the Japanese, comments analyst Faisal Islam.

Tokyo was playing a tough game. The Japanese finance minister had described Japan's holdings of US government bonds (at $1.1 trillion, the world's largest) as a"bargaining card" that could be put on the table, he continues.

Reaching an agreement is of particular importance, both in itself and as an example for other major economic powers, such as the European Union. The agreement was announced on the day that Japan hosts EU leaders in Tokyo. There were reports that Japan, the EU and Canada might agree on a coordinated response to the US. But the agreement puts the brakes on any such initiative. Some EU member states are wondering why a similar agreement cannot be concluded, at a time when France and Germany are escalating their threats, possibly also against American technology giants.

While no other details have been released, it is clear that Japan has protected its agricultural imports, although it will increase imports of American rice. Whether reluctant Japanese consumers will switch to buying large American cars remains unknown, but Japanese companies will be encouraged to invest about half a trillion dollars in the United States.

Japan has chosen to move forward with the deal now, while it could have waited to see how markets react when Trump’s tougher measures take effect on August 1. The Japanese prime minister’s political weakness at home may have played a role. Other countries, such as Indonesia and the Philippines, have also struck deals.

More broadly, it is a grudging acceptance of the new regime: the US is imposing tariffs that a year ago would have been unthinkable on its closest allies – for fear of something worse. In the case of Japan, Trump had threatened tariffs of 25%.