Comment

The trade deal between Donald Trump and Ursula von der Leyen, while being the least bad one, is a geopolitical disaster for the EU

Jean-Luc Demarty / Aug 2025

Photo: Wikimedia Commons

 

Donald Trump has not treated the traditional allies of the US more favourably than China. This is his fundamental mistake. China is the main player responsible for the major world trade disorders due to its unbalanced model of state capitalism, exclusively export oriented, with massive oversavings and underconsumption, and an excess of investment leading to a structural surplus.

The logical approach should have been to constitute a large alliance in order to force China to correct the imbalances of its economic model and to reform the WTO rules on industrial subsidies and trade defence instruments. Donald Trump is doing just the opposite. In reality he is strengthening China’s hand.

The EU being treated like China by Donald Trump should have reacted in the same way in April with strong retaliation on goods and also on services with its new powerful anti-coercion instrument. It would have led to a trade war for a few weeks but Donald Trump would have been obliged to backtrack faced with the likely political and financial effects in the US. The result would have been a better deal for the EU - not necessarily dramatically better - but without the drawbacks of conceding to Donald Trump’s extortion and coercion.

The leaders of the most important EU Member States did not want to take this risk for two reasons. Firstly, they feared the effect of a trade war that their big businesses wanted to avoid at any price. Secondly, they thought that it could lead Donald Trump to give up Ukraine. In my view it is wrong because Donald Trump will give up Ukraine anyway and make a deal with Putin sooner rather than later in spite of the present theatre.

Even if Ursula von der Leyen probably shared the opinion of the majority of EU leaders, she has been obliged to implement the strategy determined above her. Without the creation of a balance of power she was condemned to negotiate on Donald Trump’s terms. It could only produce an unbalanced  result.

However, the deal concluded with Donald Trump is close to the least bad one possible in these circumstances : in spite of three tactical mistakes by Ursula von der Leyen.

Firstly after Trump’s April anouncement she did not add immediately the threat of the €72 billion in retaliation for cars to the €21 billion for steel already on the table. Secondly, she gave the impression of wanting a deal at any price, which is a basic mistake in any negotiation. Thirdly, she did not trigger the first step of the anti-coercion instrument when Donald Trump threatened the EU with 50 % tariffs. When you negotiate with somebody like Donald Trump, you must have a loaded Colt on the table.

Finally, the result is rather close to the objective. It secures an acceptable access to the national security sectors subject to prohibitive tariffs of 25% (50% for steel) in exchange for accepting the 10% Trump tariffs. The EU got a ceiling of 15% tariffs which contains the Most Favoured Nation (MFN) US tariffs of 4,8% in arithmetic average. The EU is alone in getting this favourable architecture. For all other countries the tariffs of 10, 15 or 20% are added to the MFN existing tariffs. It means that the EU deal is more or less equivalent to the UK deal because 10% is added to the 4,8% MFN tariffs. In fact, it is even more favourable because the EU got a better deal on national security sectors such as cars and pharmaceuticals. For products for which MFN US tariffs are 15% or higher, it is the status quo for the EU and 10% more for UK. It is also the case for cheese (15%) or shirts (16,5%).

However, for the EU having the least bad of all bilateral deals is a meagre consolation. Surrendering to Trump’s extortion and coercion is a geopolitical disaster. China and even others could try to do the same to the EU. It risks doing irreparable reputational damage for the EU which could even affect its capacity to conclude its ambitious agenda of six free trade agreements still to be negotiated in Asia.

It is also a geoeconomical disaster because the EU has accepted that Trump redefines unilaterally the international rules of trade against its essential interests. The EU has even concluded a deal which is blatantly violating the rules of trade it claims to defend by concluding a preferential agreement which is not a FTA.

Nine days after the conclusion of the deal in Turnberry, Trump has said that he will receive $600 billion from the EU with which he will do whatever he wants. If he thinks that this ridiculous affirmation is the truth - and he behaves accordingly - it is clear that the deal will soon be dead. It would mean that once you accept extortion and coercion, it would trigger only more in the same way as with the real mafia. If it is the case the EU would have no other choice than to start massive retaliations, following my initial advice.

 

Jean-Luc Demarty

Jean-Luc Demarty

August 2025

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