U.S.-EU TRADE ACCORD: A COMPLETE TRADE FAILURE

1. It will cost the EU companies 4-5 times more to do business with the U.S.
2. The EU has committed to invest more 750 billion dollars in energy and chips
3. The EU has committed another 600 billion dollars on vague investments.

The latter on its own will lead to the solid groundwork for another 1,35 trillion dollar trade deficit with the US. This is not just a surrender but rather 27 countries all together making a fool of themselves.

Few people can understand why the EU bowed unconditionally.  

According to the Prospect Theory in economics, when someone is positioned in a domain of losses, a lesser loss is considered a disproportionally larger gain and will make him gamble even more by succumbing to a greater risk-seeking behavior. And the EU had been indeed positioned in a domain of losses as the Trump administration had already imposed 25% tariffs on EU cars and promulgated 30% tariffs as of August 1st. So, the gambler EU was losing already and suffering from that, something that made the 15% all-in concession seem like a handsome gamble to take, although it is an economic havoc for the EU.

It might be that Von der Leyen doesn’t get Prospect Theory. But what about the Commission’s famous trade cabinet? Did they all skip Prospect Theory from their coursework? If not, then how is it possible to be trapped in Scotland over a complete and utter trade failure?

The EU trade with 15% tariffs will make the EU businesses suffer much much more than the B.T. (Before Trump) era. Not to mention the 1.35 trillion trade deficit that the EU will shoulder by pledging to Trump to buy whatever he wants the EU to buy, from oil to chips, you name it.

Von der Leyen surrendered to Trump in Scotland for absolutely no reason at all. The EU didn’t assess the hand they have—Europe’s own sources of leverage over Trump and Trump’s America and how to strengthen that hand. They did not have  a clear and realistic plan of what they wanted to achieve in the transatlantic game of poker that is likely only just beginning. Where do they want to remain aligned with the US? Where do they want to rebalance the relationship? And where do they want to break from America? Europeans did not play their hand cannily in pursuit of those ends.

The EU failed to realize that Trump most fundamentally cares about cards—or in other words, power. So any European response should have been rooted primarily in power rather than economics, rules or US domestic politics. Today, the US has “escalation dominance” over Europe; holding a superior position across a range of fronts—from military and diplomatic to economic and technological—that could make European retaliation a losing bet.

But the reality is more complex. Europe needs to demonstrate mutual asymmetric dependency. Significant aspects of America’s prosperity and geopolitical power have for years and sometimes decades benefited from good relations with Europe. And Europeans command certain of these chokepoints. In other words: they do hold cards. The EU has developed a harder geoeconomic edge and new deterrent tools. For example, its Anti-Coercion Instrument (ACI, sometimes dubbed the “bazooka”) entered into force in December 2023 and provides the union with a structure for calibrating collective responses, such as counter-tariffs, to detrimental third-country policies.