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EU-US economic and political relations are complex, marked by deep economic and shared historical ties with extensive trade and investment partnership. These relations are now undergoing significant changes in recent times, particularly due to the recent political shifts, with the return of Donald Trump to the White House. His return has introduced new challenges and uncertainties.
In 2024, the total trade in goods and services between the EU and the US surpassed €1.6 trillion, averaging €4.2 billion per day. This signifies a doubling of trade over the past decade. The EU had a €198.2 billion trade surplus with the US in goods, with exports reaching €531.6 billion and imports at €333.4 billion. However, in services, the US had a surplus, which significantly reduced the overall trade deficit to €54 billion.
The US not only is the EU's largest trade partner, accounting for a fifth of EU exports in 2023, but also remains its largest investment destination accounting for 55 per cent of total investment in the US. In fact, investments between the two blocs far outweigh their respective investments in other regions in the world.
President Donald Trump has made it clear that tariffs are the central part of his America First trade policy agenda and has already provoked US-EU trade tensions. Now ongoing trade disputes and protectionist measures have already created frictions between the EU and the US. The rise of protectionist and unilateralist tendencies would undermine the existing international order and create tensions within the transatlantic alliance.
In fact, a trade dispute has been raging between the US and the EU for months. Trump threatened to impose 30 per cent tariff on imports from the EU worth €380 billion from August 1. After weeks of wrangling, US president Donald Trump and EU Commission President Ursula von der Leyen announced a trade agreement on July 27 at Trump Turnberry golf course in Scotland. The agreement establishes a new baseline for transatlantic trade and sets a 15 per cent tariff ceiling on most EU exports to the US, thus averting a trade war between the two of the world's biggest economic powers.
The deal was struck under the threat of a sharply escalating tariffs, and both sides have presented it as preferable to an all-out-war. However, some of the finer details are still unclear. In fact, neither side has released the text of the agreement.
Compared to the UK, the EU has got a less favourable deal, and this has created a division on the island of Ireland. Northern Ireland as part of the UK can sell to the US on a 10 per cent tariff rate as applicable to the UK, while their neighbour in the Irish Republic (an EU member) will be hit with the 15 per cent rate. Brexit has already created a huge problem for customs arrangement between the UK and the EU. The Financial Times summed up the nature of the deal in the headline of an article: How the EU succumbed to Trump's tariff steamroller.
An article in Bloomberg noted that President Trump has escalated the US tariff rate to the highest level since the 1930s. But the EU Commission President said this brings "certainty in uncertain times" adding that 15 per cent rate "is the best we could get."
US Trade Representative Jamieson Greer outlined the rationale for Trump tariffs in an article in the New York Times on August 7, titled "Why We Remade the Global Order." He argued that the system that was introduced in the immediate post-war period and continuing through the establishment of World Trade Organisation in 1995 was "untenable and unsustainable" with the "biggest winner" being China. He further added that the deal between Trump and the EU announced at the end of July was a "historic agreement", to be followed as a model.
The old liberal open global economic order under the GATT and its successor the WTO promised benefits to participants. Now purely the US mercantilist interests dominate as indicated in Greer's article. In fact, the US under Donald Trump has initiated a trade war that is dismantling the post-war international order radically and contributing to declining global growth prospects. His trade war is also creating pervasive geopolitical risks.
Currently, the primary geopolitical risk is the Ukraine-Russia conflict. The conflict has deep roots, stemming from historical, cultural, and political tensions. Key factors include Russia's consistent opposition to NATO expansion into Eastern Europe, seeing it as a threat to its security and strategic interests. A key concern was Ukraine's ousting of pro-Russian president Viktor Yanukovych after protests over his rejection of an EU trade deal, followed by Russia's annexation of its former territory Crimea, which heightened tensions.
However, some political analysts argue that Ukraine itself has become the most visible arena for historical shifts in global geopolitics that goes beyond its border. In this Ukraine itself has little to do with the shift, but the issue commands global attention.
Donald Trump has claimed during his election campaign that he would end the Ukraine war quickly if he were elected. It is essential for President Trump that the conflict between Russia and Ukraine be resolved, enabling Washington to devote its attention to strategies for containing China. However, quick solution to the protracted conflict is likely to prove elusive.
In an August 19 interview, Professor Jeffrey Sachs of Columbia University criticised the US's Ukraine policy for broken promises, NATO's actions, and regime-change efforts, arguing that Trump's inconsistency could prolong the conflict.
President Trump has repeatedly changed his position on the Ukraine conflict, even after vowing to end it within 24 hours of taking office. Eight months later, with ceasefire talks stalled, he and Russian President Vladimir Putin are pushing for a peace deal that skips a ceasefire - putting them at odds with Kyiv and its allies.
In fact, the meeting between Russian President Vladimir Putin and US President Donald Trump in Alaska could be viewed as one of Russia's significant diplomatic wins. The Alaska summit also clearly demonstrated Russia cannot be defeated or sidelined.
Furthermore, Trump's "hourly flip-flops", land swaps, threats, and bluffs ignoring Russia's ironclad demands for Donbas and Luhansk control, Ukraine neutrality, and NATO rollback were also exposed during the summit.
Former EU diplomat Alastair Crooke breaks down what really happened at the Alaska meeting between Donald Trump and Vladimir Putin. Crooke says that the long-discussed "frozen conflict" ceasefire is now over. He then adds that Trump quietly shifted toward accepting Putin's peace plan, and Europe will be forced to face harsh military realities without American backing.
Such a shift in Trump's position was not because of the US's goodwill as there is no such thing in international politics, but because of pressures. Trump's summit with Putin in Alaska and talks with European leaders in Washington signal a shift from confrontation to cautious coexistence.
President of Finland Alexander Stubb refers to the EU establishment as "Team Europe," which continues to demand security guarantees for Ukraine. That was the central theme at the meeting between seven EU leaders, all long time supporters of Ukraine amid its war with Russia along with Ukrainian President Zelensky with President Trump in Washington.
Now it looks like US President Trump has found a way to monetise it at the EU's expense - a cost that will, naturally, be passed down directly to European citizens. Trump has ruled out sending American ground troops into Ukraine. To put it in another way, security guarantees have apparently become a euphemism for the EU funding the US military-industrial complex.
While the European media framed it as progress on security guarantees for Ukraine, Russia's foreign ministry issued a declaration calling demand to deploy NATO troops to Ukraine a "sharp escalation" that is "categorically unacceptable to Russia." It further added that such action could lead to "an uncontrolled escalation of the conflict with unpredictable consequences."
The transatlantic alliance is under strain and faces the urgent task of reinventing itself. There are clear indications that the US's relationship with the EU is changing and is becoming increasingly fraught with problems.
The Washington summit with President Trump highlighted the EU's reliance on the US and its struggle to act independently. As the dust settles on a whirlwind of activities last week regarding the Ukraine-Russia conflict, it is difficult to discern what, if anything was achieved. Chances of the Ukraine-Russia conflict coming to an end soon look dim.