The European Union’s massive €1.6tn transatlantic trade volume hangs in the balance as President Trump’s July 9th deadline for potential tariffs approaches, with only two days of talks remaining. The threat of 50% tariffs on EU imports, and potentially 70% on others, has injected significant uncertainty into the global economy, causing businesses to pause investments and the dollar to experience its worst performance in 50 years. The EU faces a critical strategic choice: prioritize avoiding a trade war or hold out for a better, more balanced deal.
US Treasury Secretary Scott Bessent confirmed that negotiations, which extended through the weekend, are focused on securing a range of agreements with important partners. The confrontational rhetoric from the Trump administration, including Trump’s past characterization of the EU as “nastier than China,” has set the tone for these discussions. A recent example was the threat of 17% tariffs on EU food imports made to Trade Commissioner Maroš Šefčovič during talks with senior US officials. The 90-day pause on “liberation day” tariffs, announced on April 2nd, is due to expire this Wednesday, with only the UK and Vietnam having secured agreements thus far.
The impending deadline raises questions about the EU’s ability to achieve anything more than a “political framework agreement” to extend talks, potentially leaving the existing 10% baseline tariff and other levies on cars, steel, and aluminum in place. European industries are bracing for increased costs, anticipating a minimum 10% tariff on exports to the US, a significant five-fold increase from the 2% average before Trump’s election last year. This strategic shift follows the EU’s acknowledgment that a comprehensive trade deal is no longer attainable.
Consequently, the EU is now aiming for an agreement in principle, or a “framework deal,” similar to the one recently implemented with the UK. While EU diplomats initially dismissed the UK deal as inadequate and potentially non-compliant with WTO rules, and had hoped their greater economic scale would secure a better outcome, they now recognize that a minimalist deal may be the most achievable outcome under the circumstances.