The EU grew to become the world’s biggest trading bloc in an era of globalisation that suited its rules-based policymaking.
Now it faces a world in which trade is a tool of naked power, with the US prepared to force favourable terms with arbitrary tariffs, export controls and threats — the world of “Don Corleone Trump” as John Clarke, former head of the EU’s delegation to the WTO, calls him.
A quick way to eliminate tariffs, Trump said in April, would be for the EU to buy $350bn of liquefied natural gas and close the trade deficit with the US. The fact the EU cannot absorb that much was overlooked. In 2024, US LNG exports to the EU were around $13bn and met half its demand, according to Columbia University.
Trump has hit the EU with a volley of tariffs since his inauguration in January. So-called reciprocal tariffs of 20 per cent have been halved until July to give time for talks. But levies of 25 per cent on steel, aluminium and cars remain in effect as Trump rails against the EU for not buying enough American goods.
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European Commission president Ursula von der Leyen, whose body runs trade policy, has to corral 27 nervous member states behind a joint position while running talks with the US and avoiding a fresh recession for an already struggling economy.
She has favoured a threefold strategy from the start. First, negotiate with Trump and retaliate when that does not work. Second, deepen trade ties with other countries to provide alternative markets for EU exporters. Third, cut barriers in the internal market.
Mario Draghi, the former Italian prime minister who authored a landmark report on EU competitiveness, cited IMF estimates that the barriers amount to tariffs of 45 per cent for manufacturing and 110 per cent for services.
“The single market in the very end is the safe harbour for our companies,” von der Leyen told the FT earlier this month. “So we’re getting rid of internal barriers.”
None of this is easy. If it was, it would have happened already. But the shock of Trump can force politicians to do the once unthinkable.
In December, the EU finally clinched a deal with Mercosur, the trade bloc that includes Brazil and Argentina. For five years Brussels had been unable to ink a deal agreed in principle in 2019 because of domestic opposition.
Green campaigners wanted binding commitments to protect the rainforest, while farmers wanted to keep out cheap imports.
An updated agreement with Mexico soon followed.
Discussions with Australia, which ended in 2023 over beef exports, are likely to restart soon, EU officials told the FT.
The EU is also accelerating talks with India, Thailand, Malaysia, Indonesia and the Philippines. In April it agreed to negotiate with the UAE.
It is working on a veterinary deal with the UK that would improve trade flows. And von der Leyen has discussed closer co-operation with the 12-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with the prime ministers of New Zealand and Singapore.
The EU already has the world’s largest network of trade agreements, with 74 countries. Some 44 per cent of its trade was covered by these preferential arrangements, according to a 2023 European Commission report.
But it has recently struggled to conclude them, as environmentalists team up with farmers to keep out imports from the developing world
Although the bloc sells more than €64bn more agrifood products than it buys, trade negotiators are limited in how much access for chicken, beef and sugar they can grant trade partners after huge protests by farmers over the past two years.
Paris, Vienna and The Hague have yet to back the Mercosur accord, saying they need greater protection for farmers, although it contains a mechanism to choke off imports if they disrupt the market.
Sabine Weyand, the EU’s top trade official, admitted recently that some green rules had alienated trading partners. Brussels has already delayed a deforestation law that would have banned imports of palm oil and lumber from countries it was negotiating with such as Brazil and Indonesia.
“We thought that we could set the standards for the rest of the world,” she said. “What we need is a more co-operative approach where we say we have to agree on the objectives. We have to leave room for different ways of getting there.”
However, officials say this new approach does not have the full backing of the Commission and many member states. The bloc will need to move fast. According to ING bank, about 2 per cent of the EU’s GDP depends on US demand. With tariffs of 20 per cent, volumes to the US would decline by about 15 per cent, cutting GDP by 0.3 per cent in the short run.
Ireland, Germany and Italy, which have big surpluses with the US, would be most affected.
“Lower exports, more competition from Asian imports and higher uncertainty will lead to lower investments and wage increases, which may lead to some job losses in Europe,” the bank said in a note. “These negative effects will be felt in 2025 and 2026.”
If the EU retaliated, that would reduce the size of the economy further.
It might yet come to that. The Commission has said that it was unclear what the US wanted in order for it to reduce the tariffs, and EU officials have been told that at least some of them will remain.
Some are already pushing for the EU to use its Anti-Coercion Instrument for the first time, which would allow measures against services, where the US has a surplus.
“Our only salvation lies in collective action. In the schoolyard, when there is a bully everybody has to stick together,” says an EU diplomat.
But, the diplomat adds, “you have to negotiate with a gun on the table even if you don’t use it”.
However, keeping unity can mean diluting the response. Italy, Ireland and France lobbied heavily to reduce the scope of the initial retaliation, fearing Trump would up the ante.
Clarke, the former head of the EU delegation to the WTO, says Brussels should co ordinate its response with other partners.
“I think it was a mistake for the EU to suspend its very limited retaliatory measures,” says Clarke. “Trump took this as a sign of weakness and division between EU member states and it will harden his approach as a result.”
