Out-gunned Europe accepts least-worst U.S. trade deal
As such, Sunday's agreement on a blanket 15% tariff after a monthslong standoff is a reality check on the aspirations of the 27-country European Union to become an economic power able to stand up to the likes of the United States or China.
The cold shower is all the more bracing given that the EU has long portrayed itself as an export superpower and champion of rules-based commerce for the benefit both of its own soft power and the global economy as a whole.
For sure, the new tariff that will now be applied is a lot more digestible than the 30% "reciprocal" tariff that Trump threatened to invoke in a few days.
While it should ensure Europe avoids recession, it will likely keep its economy in the doldrums: it sits somewhere between two tariff scenarios the European Central Bank last month forecast would mean 0.5-0.9% economic growth this year compared with just over 1% in a trade tension-free environment.
But this is nonetheless a landing point that would have been scarcely imaginable only months ago in the pre-Trump 2.0 era, when the EU along with much of the world could count on U.S. tariffs averaging out at around 1.5%.
Even when Britain agreed a baseline tariff of 10% with the United States back in May, EU officials were adamant they could do better and — convinced the bloc had the economic heft to square up to Trump — pushed for a "zero-for-zero" tariff pact.
It took a few weeks of fruitless talks with their U.S. counterparts for the Europeans to accept that 10% was the best they could get and a few weeks more to take the same 15% baseline that the United States agreed with Japan last week.
"The EU does not have more leverage than the U.S., and the Trump administration is not rushing things," said one senior official in a European capital who was being briefed on last week's negotiations as they closed in around the 15% level.
That official and others pointed to the pressure from Europe's export-oriented businesses to clinch a deal and so ease the levels of uncertainty starting to hit businesses from Finland's Nokia to Swedish steelmaker SSAB.
"We were dealt a bad hand. This deal is the best possible play under the circumstances," said one EU diplomat. "Recent months have clearly shown how damaging uncertainty in global trade is for European businesses."
That imbalance — or what the trade negotiators have been calling "asymmetry" — is manifest in the final deal.
Not only is it expected that the EU will now call off any retaliation and remain open to U.S. goods on existing terms, but it has also pledged $600 billion of investment in the United States. The time frame for that remains undefined, as do other details of the accord for now.
As talks unfolded, it became clear that the EU came to the conclusion it had more to lose from all-out confrontation.
The retaliatory measures it threatened totaled some €93 billion ($109 billion) — less than half its U.S. goods trade surplus of nearly €200 billion.
True, a growing number of EU capitals were also ready to envisage wide-ranging anti-coercion measures that would have allowed the bloc to target the services trade in which the United States had a surplus of some $75 billion last year.
But even then, there was no clear majority for targeting the U.S. digital services that European citizens enjoy and for which there are scant homegrown alternatives — from Netflix to Uber to Microsoft cloud services.
It remains to be seen whether this will encourage European leaders to accelerate the economic reforms and diversification of trading allies to which they have long paid lip service but which have been held back by national divisions.
Describing the deal as a painful compromise that was an "existential threat" for many of its members, Germany's BGA wholesale and export association said it was time for Europe to reduce its reliance on its biggest trading partner.
"Let's look on the past months as a wake-up call," said BGA President Dirk Jandura. "Europe must now prepare itself strategically for the future — we need new trade deals with the biggest industrial powers of the world."
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They will also look for clues about a possible leaders' summit because any real deal will hinge on the two presidents meeting each other, he said. Fentanyl-related tariffs are likely a focus for China In Stockholm, Beijing will likely demand the removal of the 20% fentanyl-related tariff that Trump imposed earlier this year, said Sun Yun, director of the China program at the Washington-based Stimson Center. This round of the U.S.-China trade dispute began with fentanyl, when Trump in February imposed a 10% tariff on Chinese goods, citing that China failed to curb the outflow of the chemicals used to make the drug. The following month, Trump added another 10% tax for the same reason. Beijing retaliated with extra duties on some U.S. goods, including coal, liquefied natural gas, and farm products such as beef, chicken, pork and soy. In Geneva, both sides climbed down from three-digit tariffs rolled out following Trump's "Liberation Day" tariffs in April, but the U.S. kept the 20% "fentanyl" tariffs, in addition to the 10% baseline rate -- to which China responded by keeping the same 10% rate on U.S. products. These across-the-board duties were unchanged when the two sides met in London a month later to negotiate over non-tariff measures such as export controls on critical products. The Chinese government has long protested that American politicians blame China for the fentanyl crisis in the U.S. but argued the root problem lies with the U.S. itself. Washington says Beijing is not doing enough to regulate precursor chemicals that flow out of China into the hands of drug dealers. In July, China placed two fentanyl ingredients under enhanced control, a move seen as in response to U.S. pressure and signaling goodwill. Gabriel Wildau, managing director at the consultancy Teneo, said he doesn't expect any tariff to go away in Stockholm but that tariff relief could be part of a final trade deal. "It's possible that Trump would cancel the 20% tariff that he has explicitly linked with fentanyl, but I would expect the final tariff level on China to be at least as high as the 15-20% rate contained in the recent deals with Japan, Indonesia, Vietnam," Wildau said. US wants China to dump less, buy less oil from Russia and Iran China's industrial overcapacity is as much a headache for the United States as it is for the European Union. Even Beijing has acknowledged the problem but suggested it might be difficult to address. America's trade imbalance with China has decreased from a peak of $418 billion in 2018, according to the Census Bureau. But China has found new markets for its goods and as the world's dominant manufacturer ran a global trade surplus approaching $1 trillion last year -- somewhat larger than the size of the U.S. overall trade deficit in 2024. And China's emergence as a manufacturer of electric vehicles and other emerging technologies has suddenly made it more of a financial and geopolitical threat for those same industries based in the U.S., Europe, Japan and South Korea. "Some enterprises, especially manufacturing enterprises, feel more deeply that China's manufacturing capabilities are too strong, and Chinese people are too hardworking. Factories run 24 hours a day," Chinese Premier Li Qiang said on Thursday when hosting European Commission President Ursula von der Leyen in Beijing. "Some people think this will cause some new problems in the balance of supply and demand in world production." "We see this problem too," Li said. Bessent also said the Stockholm talks could address Chinese purchases of Russian and Iranian oil. However, Wildau of Teneo said China could demand some U.S. security concessions in exchange, such as a reduced U.S. military presence in East Asia and scaled-back diplomatic support for Taiwan and the Philippines. This would likely face political pushback in Washington. The Stockholm talks will be "geared towards building a trade agreement based around Chinese purchase commitments and pledges of investment in the U.S. in exchange for partial relief from U.S. tariffs and export controls," Wildau said. He doubts there will be a grand deal. Instead, he predicts "a more limited agreement based around fentanyl." "That," he said, "is probably the preferred outcome for China hawks in the Trump administration, who worry that an overeager Trump might offer too much to Xi."
