A US-EU trade war appears to have been avoided, the European Union took a real hit, but the transatlantic relationship will remain unpredictable. Those are the main takeaways after Brussels and Washington shook hands on a trade framework agreement in Scotland on July 27.
It’s fair to say that there is relief but no real celebration after the deal between the world’s two largest economies, a relationship that generates trade worth $1.7 trillion per year. The sweeping US tariffs of 30% on all EU products that were set to take effect on August 1 are off the table, as is Brussels’ 93-billion-euro retaliatory package that was set to be delivered a week later.
What emerged instead is a deal seemingly heavily tilting in favor of the United States. Instead of 30% tariffs, Brussels accepted 15% on most goods – from cars to semiconductors and pharmaceuticals. Steel and aluminum will continue to be levied at 50% even though a quota system will be put in place that means that trade in some steel and aluminum products can go below the set tariff.
On top of that, Trump also secured an agreement that the EU will purchase 750 billion USD worth of American energy, notably LNG in the next three years, and invest 600 billion USD into the US on top of the purchases of energy products. With the EU committed to completely phasing out Russian energy imports by the end of 2027, the move to buy more LNG makes sense from an EU perspective even though it will also seek other alternatives from the Middle East, North Africa and Norway.
The United States, on the other hand, offered few, if any, concessions in return, prompting cries in European countries of “capitulation” and “submission.” Earlier this month the bloc was close to securing an agreement for a 10% baseline tariff, still a hike compared to the average 4.8% from before US President Donald Trump’s second term. The 30% tariff curveball by the White House on July 12 did, however, upend any chance for a rapid and more advantageous deal for Brussels
An ashen-faced European Commission President Ursula von der Leyen said after the direct negotiations in Scotland with Trump that the deal “delivers stability and predictability.” An EU diplomat told RFE/RL that von der Leyen simply did the “best of a terrible situation, as she was dealing with someone willing to break the entire China shop.”
In the end, Trump knew he had the upper hand and that Brussels wasn’t too keen to strike back. A European official with knowledge of the talks noted that Washington understood fully well that the bloc’s Eastern flank countries believed that annoying Washington would have “serious consequences”, even though Trump reportedly never threatened to withdraw US troops from the region. He was also aware that the Irish wanted to safeguard pharmaceutical exports, the French the alcohol trade and the Germans secure the same access to the American market for its cars as the Japanese were offered in a Washington-Tokyo trade deal a few days earlier. “He simply understood our weaknesses,” as the official put it.
On paper, it now looks that the United States has Europe exactly where it wants it -- not only on trade. At the NATO summit in The Hague earlier this year, European allies and Canada committed to ramp up defense spending to 5% by 2034 and then came up with an agreement that the same countries will buy American arms to supply to Ukraine.
But take a closer look at all these deals and you find loopholes. On the defense spending, only 3.5% is supposed to go on “hard” military spending and many countries have already admitted that they will struggle to reach it. The idea of buying American to send to Ukraine is hardly a new one and while there is willingness to do this, the issue here is rather one of limited Western production capacity for now, combined with supply chains being overstretched already.
On the trade deal there are also considerable carve-outs and exemptions. It is worth remembering that this is a framework agreement with the nitty-gritty but crucial details being worked out in the weeks to come. Washington and Brussels have already agreed zero tariffs on their respective aircraft, semiconductors, critical raw materials as well as some chemicals and agricultural products. Expect more products to be added to this list – especially after intensified lobbying from both sides of the Atlantic in the coming weeks.
