Early wins for US, but dynamics of EU alliance is changing

Al Etihad

2 days ago

4 Aug 2025 23:55
SULTAN KHALIFA AL RUBAEI*Tariffs have once again taken centre stage in US and international trade, following the August deadline set by United States President Donald Trump for countries to present trade agreement proposals or face steep tariffs. The US administration secured deals with several of its trading partners, most notably the European Union (EU) and the United Kingdom. However, the global trade landscape now appears to be bracing for profound changes in trade rules that go beyond the post-World War II era.The US agreement with the EU included a 15% tariff on European goods (significantly lower than the 30% previously threatened by the US president), an exemption for pharmaceutical products, and limited exceptions for aircraft and medical equipment. In return, the EU committed to purchasing $750 billion worth of US energy products and investing approximately $600 billion in the US. This agreement secured substantial additional revenue for the American economy.The 'America First' policy pursued by the United States in its dealings with both partners and non-partners pushes it toward manoeuvring economic policies. But beyond the deals and manoeuvres lies US-European relations, particularly with the EU, the foundation of which is no longer only partnership, but also competition, or rather, the partnership is taking a backseat in the face of competition. This shift may be attributed to internal divisions among the EU's 27 member states, the multiple challenges facing the ageing continent, and the heavy reliance on the United States when it comes to defence forces. At this time, none of the EU countries can afford the economic strain of a trade war.On the American side, the current administration has shown little regard for the mutual trust in the transatlantic free trade relations, nor for the existing rules of international trade. As a result, there is a possibility that other global actors may adopt similar protectionist policies, posing a threat to the stability of international markets, particularly in light of the tensions that the current environment may create at the level of international trade relations.Amid the changes and uncertainty, the EU chose to stay aligned with America, albeit at a high cost. The newly imposed tariffs place a heavy financial burden on EU-based companies, forcing them to bear additional billions in expenses. While EU member states acknowledge the agreement's potential harm to their economies, they have viewed it as the best possible option under the current circumstances. It may mark the beginning of a longer negotiation process rather than the end, given the limited options available. Without formal trade agreements with Washington, the EU risks being subjected to US terms, leading to imbalanced deals or potential trade confrontations.The United States emerged as the winner in the agreement with the EU. However, the outcome also places a burden on American consumers, who are likely to face higher prices for imported goods as companies pass on the additional costs. This is particularly significant given that Germany is one of the largest exporters to the US, with exports exceeding €161 billion in 2024. Ireland's exports to the US reached €72 billion and Italy's €64 billion in the same year, according to Eurostat, the EU's statistical office. In total, 20% of the EU's goods exports are directed to the United States. This makes the agreement the least damaging option for Europe to avoid a trade confrontation between two allies who together account for nearly one-third of global trade. The effects of this deal may become visible in the US market in the coming months.Through this agreement, the US aims to achieve economic balance and address its trade deficit with the EU, which reached $235.6 billion in 2024. Although the deal helps avoid a trade war, it shows that the dynamics of old alliances are shifting, international trade is being reshaped amid global economic uncertainty, and competition for each country to achieve huge gains has become a defining feature of today's international economic and trade relations.
*The columnist is a researcher with the think-tank firm, TRENDS Research & Advisory