US-EU trade deal leaves European countries unhappy

United States President Donald Trump in his vacuous hyperbole has called the US-European Union (EU) trade deal as “the biggest deal ever made”. But for many European countries it was the best deal in a bad situation.

German Chancellor Friedrich Merz said, “This agreement has succeeded in averting a trade conflict that would have hit the export-orientated German economy very hard.”

EU Trade Commissioner Maros Sefcovich told journalists, “This is clearly the best deal we could get under very difficult circumstances.”

He said that the 30 per cent tariff that Trump had threatened would have been “much, much worse”.

The deal now provides for 15 per cent tariff on all EU exports to the US, apart from buying $750 billion worth of energy, including oil, gas and nuclear from the US over the next three years.

Experts say that the US will have a challenge producing so much of energy resources to sell to Europe. The EU has also pledged $600 billion in European investments in the US, a little higher than the $550 billion Japanese investments in the US.

The difference is that while Japan will use the state-controlled banks to channel the flow of funds to the US, the EU has said this figure is based on the intention expressed by the European private companies.

France has criticized the deal. French Prime Minister Francois Bayrou wrote on X, “It is a dark day when an alliance of free peoples, brought together to affirm their common values and to defend their common interests, resigns itself to submission.”

Sweden said it was the “least bad alternative” and Spain said it was backing the agreement but “without enthusiasm.”

Wolfgang Grobe Entrup, head of the German Chemical Industry Association said, “Those who expect a hurricane are grateful for a storm.”

The US-EU trade agreement is one that has been clinched under duress by the Americans. But it is not going to be an easy agreement to implement. The EU wants to buy energy from the US. The question is whether the US has the capacity to produce enough energy to meet the demands of the EU. It seems that the US will find it difficult to sell energy to Europe to the tune of $750 billion. This is just one part of the problem.

Europe will bear a heavy burden even though the US tariffs are now at 15 per cent. Before the deal, the tariff was at 2.5 per cent, which was very, very low indeed.

A fair deal would have been where the rise in tariff would have been gradual, starting from 5 per cent and going up to 7.5 per cent because then it would not have hurt the business costs for Europe as well as for the American businesses and consumers buying European goods and services. Trump’s shock treatment would harm the Americans as much as the Europeans.

Will the Europeans keep up the present volumes of exports to the US at the present levels – $605.8 billion in 2024 – because the 15 per cent tariff will impact the exports on both the American and European ends?

European companies will have to factor in the 15 per cent tariff into the price, and the American consumer will have to pay so much more. The US exports to Europe are far less at $370.2 billion in 2024 and the trade deficit is $235.6 billion.

Will these figures change because of the deal? Will US exports to Europe increase, though European exports to the US are likely to fall? And the US may not be able to cover up the trade deficit. It is not a punitive deal, and it will not benefit the US.