On July 27, U.S. President Donald Trump and European Commission President Ursula von der Leyen announced a new transatlantic trade agreement. Washington will apply a 15 percent tariff on EU exports to the United States, and in return the EU will invest an additional $600 billion in the U.S. economy and the purchase $750 billion of American energy over the coming years.At first glance, the 15 percent tariff allows Trump to claim that he cut the originally threatened tariff in half, while Brussels can say it avoided the 30 percent cliff. Yet the reality is that the EU passively accepted a discounted but still punitive tariff — an archetype of a unilaterally dictated deal.
In truth, the across-the-board 15 percent is only a cap; the details that actually determine industrial life or death remain unsettled. Steel, aluminum, semiconductors and spirits still hang like three Swords of Damocles, ready to fall if the coming American mid-term elections, or an internal EU veto, or a fresh U.S. Section 232 investigation reopens the file. The accord therefore buys Brussels three to six months of tactical breathing space. It is not really a strategic settlement.
The agreement departs from the win-win logic of traditional trade accords. As Bernd Lange, chair of the European Parliament's Committee on International Trade, warned, it “does not serve Europe's fundamental interests.” Washington locked EU exports into a 15 percent tariff without committing to any reciprocal cuts in non-tariff barriers, market-access openings or government-procurement concessions. Brussels not only accepted a rate above its original 10 percent red line, but also pledged fresh investment and defense purchases, forfeiting structural reciprocity.
On one hand, at the industrial level, the additional investment of $600 billion plus energy purchases of $750 billion plus large military orders means that capital and demand will shift from Europe to the United States. This will directly impact exporting industries in the EU such as automobiles and machinery. On the other hand, from the security level, the large-scale purchase of American-made weapons will solidify the EU's dependence on the U.S. umbrella and weaken the EU's plans for strategic autonomy, such as the European Defense Fund and Permanent Structured Cooperation.
The prospects for $600 billion of new investment in the United States are unclear. In fact, this $600 billion is not an EU budget item but needs to be jointly raised by member governments, enterprises and the European Investment Bank. There is no budget allocation at this time. The current EU 2021-27 multiyear fiscal framework has been compressed to 1.07 trillion euros, and there is little fiscal space for new large-scale investments in the United States.
There are also obvious differences at the member state level. Germany and the Netherlands, for example, have limited fiscal surpluses, and countries in southern Europe are more concerned about recovery funds and debt reduction. Their willingness and ability to “transfuse” investment in the United States will be limited. More important, the EU's private sector is not particularly willing. Future investments in the United States and the expansion of production capacity will depend on U.S. policy, labor availability and profit returns. If the investment returns in the United States are below those in other places — countries in Southeast Asia, for instance — European companies will be more inclined toward symbolic capital increases rather than actual capacity transfers.Given the four major pressures — lack of mandatory constraints, scattered sources of funds, doubtful market returns and internal political resistance — the actual scale of implementation is likely to shrink. From this point of view, the temperature difference between the positions of EU officials and industrial leaders is more like a typical bet between political stop loss and economic blood loss.
The structural imbalance of the new trade agreement will inevitably lead to a resurgence of U.S.-EU trade frictions, which could crop up anytime. First, the EU hopes to exchange large-scale purchases of U.S. military equipment and defense technology for the “temporary escalation” of the unresolved areas of steel, aluminum, chips and spirits. The specific tax rates, quotas and technical details of these areas have all been left to later negotiations.However, this ambiguous clause puts the EU in a passive position to make concessions should it run up against future threats from the United States. The final deadline for the U.S. to extend its Aug. 1 deadline is near, and any hard-line stance by either party could lead to a partial breakdown of the agreement.
The uncertainty of approval within the EU is another factor. The new trade agreement still needs to be voted on by the European Parliament and member states. If the parliament insists on a position perceived as harming European interests, it may face some public opinion sniping, as happened with the Transatlantic Trade and Investment Partnership (TTIP) in 2016. This could lead to the shelving or even rejection of the agreement.
The new trade agreement will bring a chain reaction of industrial and energy dependence. Although large-scale purchases of U.S. liquefied natural gas have reduced Europe's dependence on Russia, they have also deepened the structural dependence on U.S. energy. At the same time, if the U.S. chip policy continues to tighten, the cost advantages of European car companies and telecommunications equipment manufacturers will be further eroded.The German business community is generally worried that to circumvent the 15 percent tariff, its automobile, machinery and chemical companies may be forced to expand production in the United States, resulting in the spillover of local employment and R&D investment. Small and medium-sized suppliers will be squeezed out of the supply chain because they cannot afford the cost of setting up factories overseas.
In addition, the new trade agreement will lead to greater geopolitical spillover effects. If the EU gives up its right to retaliate against the Section 232 tariffs on steel and aluminum under pressure from the United States, it will weaken its bargaining position for World Trade Organization reform and in trade negotiations with China.
In short, the accord is once again a tactical cease-fire, not a strategic settlement. Washington uses tariff leverage for short-term fiscal and industrial gains, whereas Brussels, hobbled by energy and defense vulnerabilities, pays for time. As long as the EU pursues strategic autonomy and Washington replaces rules-based multilateralism with transactional deals, fresh disputes over market access, industrial subsidies and standards are inevitable.
