The United States Trumps the EU

President Donald Trump landed a big win with the US-EU framework deal just concluded at his Turnberry golf course in Scotland. The bloc scored a bogey. It may have avoided more draconian American tariffs, but early details reflect a setback for Brussels on substance and geopolitical positioning.

Like trade negotiations, golf requires focus and concentration more than strength. Europe sells itself as the world’s largest single market, but Trump’s unilateral and asymmetric approach knocked the continent off-kilter from the start and rattled its confidence. In the end, the US president outmaneuvered Europe by demanding significant concessions and offering little except a reprieve from threatened higher duties. The deal, which excludes any enforcement commitments, creates significant leverage for the United States in future negotiations, during which tariffs could change—up or down—yet again.

The competitiveness of European firms in the American market will shift. They will be on similar footing to Japan’s companies but at a competitive disadvantage to Britain’s. But Europe’s relative position in the new global tariff structure will depend on the unfolding negotiations with Canada, Mexico, and China, and on future duties, including those related to Section 232. As such, it is unknown how Europe’s deal will end up ranking against those Trump makes with other countries. The president’s penchant for abolishing or rewriting trade agreements at a whim means the pecking order in global trade will remain unstable and subject to regular modification.

The deal’s inclusion of European investment in the United States and purchases of American products—to the tune of €750 billion in energy and €600 billion in other goods— makes clear, however, that Europe’s dependence on the United States will grow. This is particularly true for AI chips and military equipment, even though Europe aims to derisk from the Americans as part of an attempt to build up its competitiveness and strategic autonomy.

The Numbers

Trump and European Commission President Ursula von der Leyen announced, as part of their deal, a flat 15% tariff on European imports into the United States. It replaces the current 10% “reciprocal” levy but avoids the rise to a threatened 30% or 50% rate. Autos, pharmaceuticals, and semiconductors, currently under separate Section 232 reviews, are included in the 15% duty.

The leaders have made conflicting statements on future tariffs on pharmaceuticals and on potentially changing the 15% rate once the US administration’s Section 232 investigation is complete. Von der Leyen noted that Trump’s future decisions would be on a "different piece of paper".

Other Section 232 tariffs on steel, iron, and aluminum remain at 50%, according to a White House fact sheet. The Commission president stated that negotiations will continue, tariffs will be cut, and quotas at historical levels applied along the lines of a similar provision for steel and aluminum in the recent US-UK trade deal.

The result will see Americans paying more for European goods, and US companies will have an incentive to source domestically. The US economy will take a hit, but the damage will be less than originally feared. Europe will not retaliate or rebalance in response to the new US levies, and EU consumers and companies will benefit from lower prices on American products.

A bright spot in the agreement is the elimination, on both sides of the Atlantic, of tariffs on goods from certain sectors. According to von der Leyen, these include aircraft, some chemicals, some generic pharmaceuticals, semiconductor equipment, agriculture, and natural resources. (A decision on spirits and wine is pending.) The United States does not produce many of the zero-tariff European products cited by von der Leyen. ASML, a Dutch company, is the sole manufacturer of certain semiconductor equipment, for example. The White House fact sheet, however, does not mention any of this. It claims instead that European will eliminate all duties on US industrial products.

Another bright spot is that the “zero-for-zero” scheme, if confirmed, may signal the end of the 30-year trade dispute concerning Airbus and Boeing about illegal government subsidies. Aviation is one of the ten key strategic sections in Beijing’s Made in China 2025 plan, and ending the quarrel will allow the United States, the EU, and their aircraft manufacturers to focus on increasing their competitiveness in a critical sector that faces challenges from state-sponsored companies.

The US-EU pact also heralds work ahead on nontariff barriers and economic security. Von der Leyen did not explicitly confirm this but did say that both issues will be a focus of future discussions. US Secretary of Commerce Howard Lutnick tweeted that Europe agreed to accept American auto and industrial standards for the first time.

What Next?

Von der Leyen has emphasized that the deal will provide certainty to business. But with this breakthrough comes the knowledge that tariffs are now a business cost that will impact investment and other corporate decision-making. Shifts in exchange rates may cover some of that cost, but American consumers could cover the rest.

In the end, businesses, investors, and consumers—not governments—will determine who comes out ahead. They, after all, are behind transatlantic investment and sales, each of which has a value four times that of actual trade flows. Intra-company trade alone makes up over 50% of the almost $1 trillion in US-EU trade in goods, fueling the supply chains behind these investments.

The EU, therefore, urgently needs to implement the recommendations of the Draghi report. The bloc’s GDP was roughly equal to the United States’ in 2010, while 13 years later it was only two-thirds the size. The loss in economic competitiveness has translated starkly now into geopolitical weakness. Transatlantic relations are now at a crossroads that sees the United States in a more dominant position than at any time in the last few decades.

As in golf, you must play your ball from where it lands. But even with a bad lie in the rough, recovery is possible with smart strategies and focus. For the EU, that means developing a strong, joint competitiveness strategy is a geopolitical, security, and economic imperative. Inaction will lead to further decline, create more strategic vulnerabilities, and undermine the bloc’s ability to serve its citizens.