London — In the end, Europe found it lacked the leverage to pull President Donald Trump’s America into a trade pact on its terms and so has signed up to a deal it can just about stomach — albeit one that is clearly skewed in the US’s favour.
As such, Sunday’s agreement on a blanket 15% tariff after a months-long stand-off is a reality check on the aspirations of the 27-country EU to become an economic power able to stand up to the likes of the US or China.
The cold shower is all the more bracing given that the EU has long portrayed itself as an export superpower and champion of rules-based commerce for the benefit both of its own soft power and the global economy as a whole.
For sure, the new tariff that will now be applied is a lot more digestible than the 30% “reciprocal” tariff which Trump threatened to invoke in a few days.
While it should ensure Europe avoids recession, it will likely keep its economy in the doldrums: it sits somewhere between two tariff scenarios the European Central Bank (ECB) last month forecast would mean 0.5-0.9% economic growth this year compared with just more than 1% in a trade tension-free environment.
But this is nonetheless a landing point that would have been scarcely imaginable only months ago in the pre-Trump 2.0 era, when the EU along with much of the world could count on US tariffs averaging out at about 1.5%.
Even when Britain agreed a baseline tariff of 10% with the US back in May, EU officials were adamant they could do better and — convinced the bloc had the economic heft to square up to Trump — pushed for a “zero-for-zero” tariff pact.
Fruitless talks
It took a few weeks of fruitless talks with their US counterparts for the Europeans to accept that 10% was the best they could get and a few weeks more to take the same 15% baseline which the US agreed with Japan last week.
“The EU does not have more leverage than the US and the Trump administration is not rushing things,” said one senior official in a European capital who was being briefed on last week’s negotiations as they closed in around the 15% level.
That official and others pointed to the pressure from Europe’s export-orientated businesses to clinch a deal and so ease the levels of uncertainty starting to hit businesses from Finland’s Nokia to Swedish steelmaker SSAB.
“We were dealt a bad hand. This deal is the best possible play under the circumstances,” said one EU diplomat. “Recent months have clearly shown how damaging uncertainty in global trade is for European businesses.”
‘Asymmetry’
That imbalance — or what the trade negotiators have been calling “asymmetry” — is manifest in the final deal.
Not only is it expected the EU will call off retaliation and remain broadly open to US goods on more favourable terms, but it has also pledged $600bn of investment in the US over the course of Trump’s term in office.
As talks unfolded, it became clear that the EU came to the conclusion it had more to lose from all-out confrontation.
The retaliatory measures it threatened totalled about €93bn — less than half its US goods trade surplus of nearly €200bn.
True, a growing number of EU capitals were also ready to envisage wide-ranging anti-coercion measures that would have allowed the bloc to target the services trade in which the US had a surplus of about $75bn last year.
But even then, there was no clear majority for targeting the US digital services which European citizens enjoy and for which there are scant home-grown alternatives — from Netflix to Uber to Microsoft cloud services.
German spending
For now, the deal does not shift the dial significantly on the already modest near-term expectations for the European economy, which at least is seen buoyed by increased German spending on defence and infrastructure in the coming years.
“We therefore still expect a modest slowing in (euro area) growth in the second half of 2025,” said Greg Fuzesi, euro area economist at JPMorgan, who also expected the ECB to make one further rate cut on top of 200 basis points of easing over the past year.
It remains to be seen whether the lopsided deal will prompt European leaders to push ahead with the economic reforms and diversification of trading allies to which they have long paid lip service but which have been held back by national divisions.
Describing the deal as a painful compromise that was an “existential threat” for many of its members, Germany’s BGA wholesale and export association said it was time for Europe to reduce its reliance on its biggest trading partner.
“Let’s look on the past months as a wake-up call,” said BGA president Dirk Jandura. “Europe must now prepare itself strategically for the future — we need new trade deals with the biggest industrial powers of the world.” Reuters
What the EU and US agreed
Brussels — The US and the EU agreed on a framework trade deal, ending months of uncertainty for industries and consumers on both sides of the Atlantic.
Main elements of the deal:
- Almost all EU goods entering the US will be subject to a 15% baseline tariff, including cars, which face 27.5%, as well as semiconductors and pharmaceuticals. The 15% tariff is the maximum tariff and is not added to any existing rates.
- The US is to announce the result of its 232 trade investigations in a few weeks and decide on tariff rates for the sectors under investigation. But the EU-US deal already secures a 15% tariff for European chips and pharmaceuticals, so the results of the investigations will not change that, US officials said. It is not yet clear, however, if the same 15% rate has been set for timber and copper, which are also under US 232 investigation.
- The US and EU will have zero-for-zero tariffs on all aircraft and their components, certain chemicals, certain generic drugs, semiconductor equipment, some agricultural products, natural resources and critical raw materials. More products would be added.
- The situation for wine and spirits — a point of friction on both sides of the Atlantic — is still to be established.
- Tariffs on European steel and aluminium will stay at 50%, but European Commission President Ursula von der Leyen said these would later be cut and replaced by a quota system.
- The EU pledged to make $750bn in strategic purchases, covering oil, gas, nuclear, fuel and chips during US President Donald Trump’s term in office.
- The EU pledged to buy US military equipment.
- European companies are to invest $600bn in the US over the course of Trump’s second term. Unlike Japan’s package — which Tokyo says will comprise equity, loans and guarantees from state-run agencies of up to $550bn to be invested at Trump’s discretion — EU officials said Europe’s $600bn investment pledge is based on private sector projects already in the pipeline. Reuters
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