U.S.-EU TRADE ACCORD: EUROPEANS ARE SPLIT

Europe no longer has the means to wage a trade war. The European Union is incapable of producing an alternative, particularly in terms of technology and electronics. This is a huge admission of weakness, but Europe can no longer tolerate or therefore engage in a trade war with the United States. It is a triumph of fear and fragmentation

The Union is facing internal divisions. A single market of 450 million consumers, certainly, but above all, 27 countries, each with its own objectives. There are so many European tensions that it is very difficult to reach an agreement and find adequate solutions. Each country is pulling the wool over its own eyes, putting Europe and joint action behind it. There is a complete loss of leverage. Germany and Italy wanted to conclude an agreement very quickly so as not to expose their economies. France and Spain, on the other hand, wanted to continue the standoff.

It's important to understand that the President of the European Commission is not neutral. She never has been. Former German Defense Minister Ursula von der Leyen has always favored a close partnership with the United States for her country. This Atlanticist conviction has been accompanied, since the February 23 parliamentary elections and the return to power in Berlin of her Christian Democratic Party, by an alignment with Chancellor Friedrich Merz, who defended a trade agreement at all costs to preserve German exports.

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What could Brussels have done better?

Despite averting a trade war, Brussels has faced criticism for failing to extract more substantial concessions from Washington. Analysts argue the EU missed key opportunities to secure reciprocal tariff cuts on high-value European exports — including wine, spirits, and luxury goods. Some suggest that placing restrictions on US tech giants and financial institutions might have pressured Trump to lower tariffs on autos and pharmaceuticals. The EU’s planned €647 billion in energy purchases from the US, paired with a further €514 billion in investments, both over three years, has left some economists skeptical about the feasibility of such commitments. It’s not sure how that will be accomplished ... as [European[ businesses make their own decisions about where they invest. Critics also point to Brussels’ early retreat from its retaliatory tariffs, which they say weakened the bloc’s negotiating leverage. Others note that EU leaders failed to capitalize on US domestic politics — such as targeting exports from Republican strongholds or encouraging US companies to lobby the Trump administration from within. Internal divisions among EU member states, notably Hungary, further fractured Brussels’ position.

What happens next?

The deal is a preliminary framework rather than a comprehensive agreement. Over the coming months, negotiators from Brussels and Washington will draft a detailed text and set a date for the 15% tariff to take effect. Given Trump's track record of last-minute demands, the EU must brace for potential revisions. The deal requires approval from EU member states and scrutiny from the European Parliament, a process likely to span several weeks.

Meanwhile, the Trump administration faces nearly a dozen lawsuits challenging the legality of his tariff policy, arguing that Trump lacks congressional authority to impose them unilaterally. Should any of these succeed, the tariffs could be voided, triggering fresh negotiations.

Key sector-specific levies also remain unresolved. Brussels is still pushing for exemptions on wine and spirits — especially vital for France and Italy. Lower rates on pharmaceuticals and semiconductors are also under discussion.

Finally, the EU’s pledge to ease nontariff barriers — such as regulatory complexities and VAT hurdles — will require careful negotiation to ensure alignment with existing EU standards.

This US-EU deal exposes four structural weaknesses in the EU’s long-standing approach to trade. If the EU fails to address them, the next round of negotiations will likely be no different.

Although trade is an exclusive EU competence, member states play an important role. And the higher the stakes, the more important this role becomes. The Commission is empowered and constrained by the political mandate it receives from the member states behind the scenes.

Member states give a lot of guidance while remaining in the shadow of plausible deniability. Throughout the negotiations with the US, signals were mixed at best. Some states called for strong retaliation; others were more reluctant – and many preferred to kick the can down the road. Member states cannot have it both ways. Nor can they expect the Commission to take a position they are ultimately unwilling to back when push comes to shove.

This situation creates an important asymmetry. A divided EU can still accept a bad deal that is better than no deal. But only a united EU with a clearly mandated Commission can engage in a sustained trade war and weather the short-term domestic costs. With so many governments refusing to take responsibility for the deal, the EU has not strengthened its hand for the future.

There are limits to how much confrontation the EU can afford with the US. After all this is the country it depends on for the continent’s security, including for sustaining Ukraine’s self-defence. The US administration has shown it is more than willing to leverage this dependence.

Beyond immediate security concerns, there are multiple choke points controlled by the US. These include some critical technologies, as well as digital and financial infrastructure. Many of these dependencies can be reduced over time, but in the short to medium term, they cannot be ignored. Concurrently, this is a cautionary tale for the EU regarding how much it could play hardball with China. As long as it continues to be completely dependent on China, such as on rare earths, the bloc is vulnerable to coercion.

Even without critical dependencies, the EU is an easy target for coercion. The power of fragmented national interests creates myriad pressure points. Even relatively small industries – if they are concentrated and well-organised – can sway the EU’s stance.

For example, early in the negotiations, France and Italy insisted that US bourbon was removed froma EU retaliation list. This is because of US threats to imports from the EU of spirits, which only made it back onto the list in mid-July. France was particularly worried about its Cognac production, an industry whose annual turnover amounts to less than 0.02 percent of EU GDP. Germany’s automotive industry was a central factor behind Berlin’s push for a quick deal with the US, ready to throw other interests under the bus. Additionally, big German brands engaged in their own parallel trade diplomacy.

The case of French Cognac and German cars speaks to a larger point. Member state governments cling to narrowly defined national interests – and they do so even if they can afford to contribute more to a European response, as is the case for Germany. If the EU finds no way to distribute the costs of tariffs and retaliation, the unity needed for such measures will be difficult to achieve.

The impact of US tariffs varies greatly between member states. For example, exports to the U.S. amount to 3.4 percent of Slovakia’s GDP, but only 0.16 percent for Cyprus. This means the fiscal and political costs of a trade confrontation are very unevenly distributed.

At the same time, the fiscal and political space to act is distributed unevenly. Each EU member should recognize its intrinsic interest in the bloc’s ability to act, even if it comes at a price. However, there are limits to what is politically feasible for each member state. The EU can and should not offer full compensation for the impact of the tariffs, but it cannot afford to ignore how costs are distributed either.

What is true for the member states within the EU is true for the EU in the global context. It is unwilling to walk the talk and pay the price for its own principles.

Since its inception, the EU has seen itself as a champion of multilateral trade, even throughout the ongoing WTO paralysis. This was despite the WTO’s obvious inability to deal with contentious issues that harm EU core interests, such as Chinese and American industrial subsidies and China’s overcapacities. With its legalistic interpretation of trade rules, the EU gained a reputation of inflexibility among its trading partners, especially in the Global South.

This is in stark contrast with Sunday’s agreement. The zero-for-zero offer on goods such as aircraft and some agricultural products breach WTO rules, which do not allow narrow sectoral agreements.

The underlying issue is that the EU has not found a way of reconciling its principled trade dogmatism with its real-world interests.

Predictably, this results in double standards. And this will continue as long as the EU either refuses to abandon its dogmatism or decides to take one for the team. This would involve refusing offers that breach WTO rules, even if this incurs considerable short-term costs for the greater good of having a multilateral trading system. But the bloc cannot have its multilateral cake and eat it, too.

Given the Trump administration’s erratic nature, the deal struck on 27 July is unlikely to be the final word on EU-US trade. It is not a legally enforceable formal agreement. Instead, it’s a kind of truce that can end at any time if incentives are no longer there. This includes credible threats of retaliation if the terms are violated.

The EU – including national governments – should use the time this deal buys to get ready for the long haul. If they do not recognize the structural failings behind this particular failure, the next negotiated outcome will be no different. More results like this are likely to happen unless the EU shifts gears.