The European Union finally signed off on its trade deal with the United States last week, and the coverage has all been about stability. After a year of brinkmanship, Brussels has bought certainty for the time being. But, as far as trade treaties go, it leaves a lot to be desired.
Let’s start with what the deal does. The EU drops its tariffs on American industrial goods to zero. In return, the U.S. applies a maximum of 15% tariff rate on most EU goods, with some product-specific carveouts. That is quite a lopsided deal. Europe gave up more or less everything it had, which wasn’t much, since its industrial tariffs were already low, while accepting barriers several times higher.
Then there’s the framing which would annoy most macroeconomics: that this deal addresses the transatlantic trade imbalance. It doesn’t and as any aforementioned annoyed macroeconomist will tell you, it can’t. Trade imbalances are not made by tariff schedules. They are made by savings and investment mismatch; by the fact that America consumes more than it produces and borrows the difference from the world. No customs duty can fix that structural arithmetic. So, the deal will not rebalance the trade deficit.
The interesting action is in what was left unsigned. American steel and aluminium tariffs still sit at 50%, untouched by the headline truce. Apart from metals, the deal carefully steps around the big unfinished business of digital products and services. Brussels’ regulatory rulebook, the Digital Markets Act and the Digital Services Act, was explicitly kept out of the negotiations. And separately, several member states (France foremost) levy digital services taxes on the revenues American tech giants earn within their borders. Washington views both the rules and the taxes as discrimination dressed up as regulation, and has kept its retaliatory options close to hand, from tariffs to visa bans on European officials. These are all unsettled and has been postponed.
Something interesting going on with the carmakers, too. A 15% tariff acts more like a deliberate investment attraction strategy than a trade-rebalancing one. The idea would be to invite European car manufacturers to invest and produce more in the US to sidestep the tariffs, which has been happening.
So is this a good deal? For nervous markets that wanted the worst case off the table, yes. But, this seems more like a managed de-escalation between two parties that were about to embark on a self-destructive trade war. And the EU seems to know it: the whole arrangement expires in 2029, with escape hatches built in throughout. It seems like this is a temporary truce on that trade war.