Author: Nicholas Zalewski, Guest Expert

The European Union and United States have announced that they have come to a tentative trade. This includes fifteen percent tariffs on EU exports to the United States, designed to make American made goods more competitive within the United States. Interesting to note, this reduces tariffs from twenty-five percent on cars and car parts exported from the EU. Over the next three years, the European Union will purchase 750 billion euros worth of American energy in order to help the bloc reach its goal of no longer purchasing Russian energy. European Companies will also invest an additional 600 billion euros into the United States by 2029.

One point that still appears unfinished is the need to come to an agreement regarding tariff rate quotas on steel, aluminum, and copper. For the mean time tariffs will remain at fifty percent, but this appears to be unfinished business as the United States does appear to desire to ensure that European steel remains competitive in the world. This is true particularly since despite some disagreements and economic competition, the United States and the EU remain allies and protecting the steel industry is important for both in order to be prepared for any potential major conflicts with other nations, as has been seen in the past.

While many citizens of the European Union are angry regarding a lack of stronger negotiations with President Trump, this energy needs to be channeled into structural changes of the European Union. Rather than remain bitter, the European Union desperately needs to reform in order to become once again competitive. It is also crucial to remember that this agreement is NOT final and will continue to be negotiated until a final version is passed. Trade deals can also be modified over time, meaning that the European Union needs to also become motivated to maneuver itself to an economic position where it can demand changes to the trade deal that are more favorable to the EU.   

The EU is not only losing ground to the United States currently but the rest of the world as well. This is evident from Europe’s shrinking role in the tech sector. In 2000, Europe was responsible for 30 percent of the tech sector internationally. In 2024, Europe was only responsible for 7 percent of the sector. Part of the issue is that while nations outside the EU can provide subsidies to tech companies, EU member states cannot. The logic for this is to make things fairer for smaller member states who have smaller national budgets, prohibiting them from giving as much as larger member states could. While this is a logical attempt to try to even the playing field for companies from different nations within the European Union, all these nations are left behind by the rest of the world. China in particular has made significant advances in the tech sector because of government assistance.  

EU’s Energy Conundrum

While the European Union has made it clear that it wants to punish Russia economically through 18 rounds of sanctions over Russia’s second invasion of Ukraine, the EU still struggles to completely wean itself off Russian energy. This is because there is still a strong debate on how to replace this energy. While some member states are embracing nuclear such as France, Belgium, and Poland by expanding or constructing nuclear power plants, others remain vehemently opposed such as Germany and Italy, due to nerves over a potential nuclear catastrophe.

Having energy available from the United States would allow for the European Union to not only stop buying energy from Russia, but other problematic nations that have less than savory human rights records. There are concerns how feasible it is for the European Union to buy this much energy from the United States within three years. This is not only due to member states having some energy contracts that have not yet expired, but also because this would require the United States to increase its production capacity.

The EU’s Difficulties With Passing Trade Deals

Besides the United States, the EU has repeatedly struggled to pass trade deals favorable to the bloc. Starting in 1999, the EU has been attempting to pass a trade deal with MERCOSUR. Despite MERCOSUR having a smaller population than the US and all member states are much weaker economy than the United States, the EU has struggled immensely to finish the deal. While negotiations officially ended in 2019, the agreement has still not been officially signed to put it into effect.  

To be fair, this cannot be fully blamed on the EU as strained relations between Brazil and Argentina have stalled the signing of the agreement. This is because President Milei was threatening to pull Argentina out of the bloc during his campaign. Now after he has decided not to, frequent clashes with Brazilian President Lula.

The EU however has had difficulties passing a free trade agreement with Indonesia, starting negotiations in 2016 yet not finalizing the deal until potentially later this year in September. The EU also started to negotiate a free trade agreement with Malaysia in 2010, yet negotiations were paused by Malaysia in 2012. Negotiations finally resumed in January this year, over a decade later.

This shows that the European Union does not have as much negotiating power as it may like to imagine it has when it comes to trade deals. For those who pay attention, the EU’s challenges with passing trade deals with MERCOSUR, Indonesia, and Malaysia should mean that it would be no surprise for the EU to also not perform very well in negotiations with the United States.  These trade deal difficulties likely went unnoticed due to these nations not being as strong historical allies with the EU as the United States has been, otherwise the results of trade negotiations with the United States would have been seen as predictable rather than a surprise.

Conclusion

Rather than stew in anger, the European Union must quickly react with significant reforms that render the EU economy more agile and competitive on the world stage. Otherwise, the economic gap between the United States and the European Union will continue to widen. If the European Union makes itself competitive once again internationally, the EU can easily force a new trade deal to make it more balanced for the US and the EU. Economic reforms would also allow for the EU to have more leverage to finally pass these other trade deals and truly cement the EU’s position as an international power.