European Central: The EU-U.S. Trade Deal May Be A Blessing In Disguise
At the Munich car show on September 8, conversation did not revolve around how impressive the new sedans and stunning sports cars were. Multiple crises loom over Europe’s automotive sector, with the CEO of the German manufacturing giant, Volkswagon, saying that U.S. tariffs were costing the firm billions this year.
In response to the U.S. President Donald Trump’s slew of tariffs on both friend and foe, Europe was clamoring for a deal; however, the one it got was, in many eyes, less than stellar. On July 27, European Commission President Ursula von der Leyen and U.S. President Donald J. Trump agreed to reduce the American tariffs on European companies from 30% down to 15%, alongside promises to invest in American energy sectors and other industries.
But while many Europeans view the deal as a capitulation, one that may have done more harm than good, signs are now pointing towards the EU-U.S. trade deal undergoing some changes during the legislative process. And with changes come opportunities for Europe to rejuvenate its economy.
The Art Of The Deal
EU-U.S. trade is a vital economic artery for both parties: trade in goods and services has doubled over the last decade, surpassing €1.6 trillion in 2024. Last year, the U.S. was the largest partner for exported EU goods at 20.6% of the total.
What irked U.S. President Donald Trump, however, was the burgeoning trade deficit between the two. In 2024, the U.S. goods trade deficit with the EU was $235.9 billion in 2024, a 13.6% jump from the previous year. Alongside other grievances with the bloc, this caused Donald Trump to launch a barrage of tariffs on allies across the world.
The move raised tariffs from a rate as low as 1.2% before Trump took office to a whopping 30%. After negotiations went back and forth for a few months, a deal was finally struck between the European Commission President, Ursula von der Leyen, and Trump.
In this deal, a range of non-legally binding agreements were made. The American tariff rate on European goods was cut in half, to a 15% ceiling in most cases. Also included in the deal are promises by the EU to buy American energy products valued at $750 billion over the next three years, and a promise to invest $600 billion in various American sectors by 2029.
Negotiations and specifics about the legal frameworks are still ongoing, but the July deal was confirmed by a joint statement in August. However, the final deal will need to be signed off by all 27 EU members, which might be a tall order.
Capitulation Or Just Commerce?
Immediately upon the unveiling of the trade deal, European politicians were livid. France’s Prime Minister at the time, Francois Bayrou, branded it an act of submission, while German Chancellor Friedrich Merz criticized the deal as hurting both sides.
Most of this furor was aimed at the perceived concessions. Despite the relative tariff cut, German automakers are still set to lose billions annually, while European drug companies were hoping for a tariff exemption. Furthermore, the 15% rate is not as good as the U.K.’s 10%, and EU steel and aluminum exports still face a 50% tariff in the U.S.
The public also had a negative reaction to the deal. In a survey released in September, 52% of respondents say the deal triggered a feeling of humiliation, with 77% believing the terms of the deal mostly favour the American economy.
However, many experts agree that the deal is far from the worst case scenario. Former EU trade negotiator, John Clarke, told the BBC that while “it's a bad day for international trade,” the EU was in a weak position and “it could have been worse." EU Trade Commissioner Maroš Šefčovič also defended the deal, saying it was the “best deal we could get under very difficult circumstances.”
A Handful Of Cards?
But Trump himself is now threatening the deal, raising the prospect of fresh tariffs after the EU’s digital services taxes and regulations hit U.S. tech giants such as Google and Amazon. With the deal’s foundation on unsteady ground, what cards does the EU have to play?
The first is the most straightforward: fight back with retaliatory tariffs.The public generally backs this, with a March YouGov Survey showing 69% of Danish, French, German, Italian, Spanish, Swedish, and British publics support retaliatory tariffs against the United States. Another survey of all EU countries found that two-thirds support the imposition of counter tariffs.
In fact, after the first tariff threat, the EU readied retaliatory tariffs of 25% on €93 billion worth of U.S. exports. But that card remained sidelined with Brussels banking on a breakthrough in negotiations.
More importantly, however, the EU still remains in a relatively weak position. It lacks leverage that other nations like China, with their rare earth reserves, have over negotiations. Additionally, the EU still relies on U.S. tech giants to provide cloud services and AI development, and the U.S. military still represents the lion's share of NATO’s current fighting capacity. Without unified political will, and the threat of escalation by Trump, this option seems unlikely.
The next option has been to use the newly created Anti-Coercion Instrument, a deterrent tool made to tackle economic intimidation. The instrument includes tariffs, export controls, and blocking access to the EU's single market. But it too faces similar hurdles as retaliatory tariffs, with the additional problem of the ACI being untested, as it was made in 2021.
This leaves a final option: eat the loss on the American front while looking for free trade arrangements with other global powers. So far, this has been the EU’s play, with the European Commission approving a pair of milestone deals with both Mexico and Mercosur, a trade bloc encompassing most of South America. The latter deal will have both slides remove tariffs upwards of 90% on each other over the next decade and a half, removing over 4 billion euros of duties on EU exports annually.
The EU also unveiled a deal with India that includes proposals on security and technology while also aiming to conclude a free-trade agreement this year. The EU is India’s second-largest trading partner, accounting for 11.5% of India's total trade, and India represents a massive burgeoning market for EU companies to gain access to while also being a potential ally to counter the influence of China.
But there is one final aspect to note. The EU-U.S. trade deal is, at the moment, just a nonbinding pledge, and the European pledges will be nigh impossible to meet. The aforementioned $750 billion investment in U.S. energy products would require a huge shift from American energy companies away from the U.S. and towards Europe. Additionally, the $600 billion general investment figure represents existing investment plans from EU firms, not governments, and those firms can always change their minds.
Trump’s tariffs are also in danger of being ruled illegal domestically. While he hasn’t lost many major cases thanks to a friendly Supreme Court, U.S. businesses are challenging Trump’s authority to impose tariffs instead of Congress. In late August, an appeals court found Trump's tariffs illegal, but they remain in place as the case proceeds to the Supreme Court.
With all of this in mind, it is becoming clear that while the original EU-U.S. trade deal wasn’t ideal, it may have been a blessing in disguise for Europe’s leaders. It got Trump largely (but not entirely) off of Europe’s back, giving him a perceived foreign policy win, while also allowing the European market to begin diversifying its trade ties with the rest of the world.
The EU may not even need to do anything on the American front, as the tariffs will begin to harm American pocketbooks more and more as time goes on and their implementation remains a legal uncertainty. What originally began as a "capitulation" to Trump, in the end may have pushed Europe to seek economic opportunities elsewhere, and in doing so, have cut the U.S. off more than the U.S. has cut Europe off.
