WHAT OPPONENTS OF THE EU-US TRADE DEAL GET WRONG / THE ECONOMIST

Transatlantic trade truths

What opponents of the EU-US trade deal get wrong

Internal reform matters more than external trade

VW ID Buzz vehicles wait to be shipped in Endem, Germany / Photograph: Getty Images

The critics were quick to jump in. 

Soon after the European Commission struck its trade deal with President Donald Trump on July 27th, it was being savaged in European capitals. 

François Bayrou, the French prime minister, called it a “dark day when an alliance of free peoples, united to affirm their values and defend their interests, resolves to submit”. 

Friedrich Merz, Germany’s chancellor, worried about “severe damage” to the German economy. 

Viktor Orban, Hungary’s populist leader, twisted the knife, saying that Mr Trump “ate Ursula von der Leyen for breakfast”.

The deal is certainly unlike any other the EU has struck before. 

Exports to America will face a tariff of 15%, lower than the 30% that had been threatened had no deal been struck, but nearly ten times as high as the rate that prevailed before Mr Trump returned to the White House. 

In turn, the eu will eliminate its own tariffs on imports of American industrial goods, and provide easier access for some farm produce. 

The bloc is also expected to buy more energy from America, and invest hundreds of billions across the Atlantic. 

For those who see trade as a zero-sum game in which deficits are for losers and exporters are winners, the EU got fleeced.

The naysayers are misguided, however. 

Unfortunately, Mr Trump’s love of tariffs means the old days of low duties are not coming back while he is in power. 

And the deal is not as catastrophic as its critics claim. 

The EU has secured similar terms to Japan’s, so its relative trading position remains the same. 

Cars made in Europe will no longer face higher, sectoral duties. 

And the EU has not had to surrender its plans to regulate digital services, which mainly hit America’s tech giants.

Some bemoan the asymmetry of the deal; that European manufacturers face tariffs, while Americans gain market access. 

But trade is not a zero-sum game. 

European consumers will benefit from greater choice and lower prices, whereas the bulk of the tariff cost will be borne by American businesses and shoppers, even if some foreign firms do cut their prices.

Last, the broader geopolitical context meant that escalation was never an attractive option for the EU. 

If trade were the only thing on the agenda, the bloc could have better afforded to hit back, in the hope of forcing America to relent. 

But “it is [also] about security, it is about Ukraine,” Maros Sefcovic, the EU’s trade commissioner, has said about the negotiations. 

Because Europe has for decades outsourced its security to America, it needed to offer trade terms that would keep a mercurial president happy and willing to stay engaged in Europe.

The EU’s critics ignore the fact that its problems run deeper than a single trade deal. 

The economy badly needs reform, innovation and investment, as Mario Draghi, a former head of the European Central Bank, laid out in a colossal report in 2024. 

Mr Trump’s 15% transatlantic tariff pales in comparison with the cost of internal trade frictions; the IMF reckons barriers within the eu amount to a staggering 44% tariff on goods and 110% on services. 

Europe’s capital markets are too shallow and fragmented to fund risky, innovative ideas. 

And the continent is far from adding the extra investments needed to close the productivity gap.

Rather than focusing on what America is doing wrong, the EU should look closer to home. 

Member states are stymieing reform. 

Germany is loth to boost its own capital markets, let alone integrate capital markets across Europe. 

France is the biggest obstacle to making more trade deals that would help diversify exporters’ markets. 

Almost a year since the Draghi report, barely any of its recommendations have been acted on. 

Damaging as a trade war would have been, it might at least have shaken politicians out of their torpor. 

Instead of pointing fingers, the critics should roll up their sleeves.