EXPLAINED | Elon Musk wants a ‘zero tariff’ zone between US and EU - What does it mean? How will it benefit Tesla CEO?

Tesla CEO Elon Musk, who has emerged as a key aide of US President Donald Trump in recent months, has advocated for a “zero tariff situation” between the United States and EU creating a free trade zone between the countries.

Musk's comments come days after Donald Trump launched a tariff offensive on European Union.

Here are five things you need to know about Elon Musk's free trade comment, what free trade means, and what its benefits are:

1. What did Elon Musk say?

Elon Musk on Saturday said he hoped Europe and the United States would agree to join in a free-trade zone. Virtually addressing The League Congress in Italy, hosted by right-wing Deputy Prime Minister Matteo Salvini, Musk said, “I hope it is agreed that both Europe and the United States should move, ideally, in my view, to a zero tariff situation, effectively creating a free trade zone between Europe and North America.”

2. Why is it relevant now?

Elon Musk also batted for cross-Atlantic labour mobility, saying, "If they wish to work in Europe or wish to work in America, they should be allowed to do so, in my view. That has certainly been my advice to the president.”

The comments assume significance after President Donald Trump unveiled sweeping tariffs on some of the United States’ largest trading partners. European Union imports were slapped with a 20 per cent duty, making it among the highest-charged territories. Musk's remarks in this scenario seems like a U-turn from Trump's views, who has reportedly told his inner circle about the Tesla CEO stepping aside from his role at DOGE.

3. What is a free trade zone?

As per the World Bank, free trade zones are “small, fenced-in, duty-free areas, offering warehousing, storage, and distribution facilities for trade, transshipment, and re-export operations”. They are called foreign trade zones in the United States. Elon Musk's zero tariff zone points to effectively ending all tariffs that the US and EU charge each other, thereby facilitating free flowing of products across the countries.

4. What are its benefits?

As per US Customs and Border Protection (CBP), free trade zones have many advantages. For example, CBP duty and federal excise tax, if applicable, are paid when the merchandise is transferred from the zone for consumption. While inside the free trade zones, the merchandise is not subject to US tax or excise duty. Therefore, products can be exported from the zone free of duty and excise tax.

5. Elon Musk's EU business

Elon Musk operates businesses like Tesla and X in the European Union. His flagship company, Tesla, faces significant tariffs from EU countries. Off late, the business has dropped in Europe, with sales of Tesla cars slumping significantly after Musk's DOGE decisions.