After the Trump administration imposed tariffs on Mexico, Canada, and China, the European Union was expected to be the next in line. Washington did, in fact, impose 25 percent tariffs on steel and aluminum imports from the EU this week, as well as on a range of other commodities including cars and agricultural products by early April.
After the Trump administration imposed tariffs on Mexico, Canada, and China, the European Union was expected to be the next in line. Washington did, in fact, impose 25 percent tariffs on steel and aluminum imports from the EU this week, as well as on a range of other commodities including cars and agricultural products by early April.
The Europeans have tried to win over U.S. President Donald Trump with flattery and alluded they could buy more U.S. gas and weapons in exchange for a reduction in threatened tariffs. But at the same time, Europeans are brainstorming about what decoupling from the United States in trade and defense could mean for them. They are also wondering if they have any realistic options left, other than appeasing Trump.
In response to Trump’s tariffs during his first stint as U.S. president, the EU retaliated with higher duties on Harley-Davidson motorcycles and Kentucky bourbon. It has reportedly prepared a list of retaliatory tariffs this time, too. Retaliation, however, isn’t a preferable path for EU nations, even if it turns out to be necessary, as it inevitably harms their own constituents who have come to rely on imports from the United States—and also risks antagonizing Trump.
That’s why the bloc is also pursuing a less confrontational and more benign policy—resurrecting dormant trade deals to offset the costs of Trump’s tariffs.
In December 2024, a month after Trump won the U.S. presidential election, European Commission President Ursula von der Leyen signed a controversial trade deal with the four founding members of the Mercosur bloc—Argentina, Brazil, Paraguay, and Uruguay. She also restarted talks with Malaysia and visited India with her entire team.
Together, those countries represent nearly 2 billion potential customers and vast alternative markets in places where the middle classes are on the rise. However, expediting these trade deals may come at the cost of the EU’s green regulations and clean industrial growth.
The EU overruled farmers’ protests against the Mercosur agreement; the protesters had been dumping manure and burning tires in Brussels and other European capitals for nearly a year. Farmers from various European countries, led by French contemporaries, protested for a variety of reasons but primarily over the fear that good quality but cheaper Latin American beef will flood European markets, and they will be outpriced. The EU said it has included safeguards and capped the amount of beef that can be imported, believing the agreement will benefit European businesses that will now have access to vast markets.
“As great-power competition intensifies, I see a growing appetite across the world to engage more closely with us. In the last two months only, we concluded new partnerships with Switzerland, Mercosur, and Mexico. This means that 400 million Latin Americans will soon be engaged in a privileged partnership with Europe,” von der Leyen said at the World Economic Forum in late January.
In her February visit to India, von der Leyen spoke alongside Indian Prime Minister Narendra Modi and announced the goal to finalize an EU-India free trade agreement by the end of the year. A senior Indian diplomat, who spoke on the condition of anonymity, said that, while talks restarted a few years ago after a long lull in the negotiations that began in 2007, there was “great momentum” in the EU-India ties.
The EU and India were both ready to make major concessions to move forward, according to sources in the Indian government. They said India will factor in the EU’s demands and consider bringing down high tariffs—nearly 60 to 100 percent on European automobiles and other luxury commodities—while expecting an understanding in return that it doesn’t have much room to open up agricultural imports since the sector is India’s largest employer, providing jobs to nearly half the country’s working age population.
In a sign of the EU’s openness to India’s concerns, German Vice Chancellor and Economy Minister Robert Habeck acknowledged that two agricultural sectors cannot be compared. “If you were to open the markets completely … the disruption to the Indian market will be tremendous,” he said.
India also hopes that the EU can adopt a mechanism to drop or mitigate the impact of the carbon tax that it said it would impose on steel and other carbon-intensive products from third countries to drive clean industrial growth. The EU came up with a rebalancing mechanism with the Mercosur bloc, which allows the four Latin American nations to challenge EU environmental measures—including carbon border management (CBAM) and deforestation legislation—if they reduce the agreenment’s trade benefits. India expects a similar concession.
The EU’s talks with Malaysia have also resumed, but only after the EU’s deforestation legislation—which called on suppliers to prove origin of the export and trace and track the entire supply chain—was suspended.
Some experts believe fewer regulations are good for business. Jacob Kirkegaard, a senior fellow at Bruegel and a nonresident senior fellow with the Peterson Institute for International Economics, said von der Leyen has a “less ambitious extraterritorial agenda” in her second term.
“Basically, what the EU has been doing is imposing, if you like, extraterritorial regulation in third countries,” Kirkegaard said. “That agenda has less legs in the new commission, and that makes free trade agreements a lot easier.”
Kirkegaard said that even if these trade deals cannot make up for the decline in trade with the United States, they send a message that free trade is mutually beneficial and retains the appeal of the current global trading system for developed and the developing countries.
“What the EU would hopefully also be trying to do is showing that you can actually gain economically by pursuing a free trade agenda,” Kirkegaard said. “Maybe there are some businesses and other political leaders, not President Trump, neither obviously the existing leadership, but other new leaders who will see that this is actually a win-win strategy, which I happen to agree with … It’s about sustaining the existing system. No better way, in my opinion, for the EU to continue to pursue significant regional deals with Mercosur and maybe India.”
Some scholars have said that the EU should go a step further and build an alliance of like-minded countries to take the United States to task at the World Trade Organization (WTO). “The EU should also prepare a case at the WTO that brings together as many impacted economies as possible,” Ignacio García Bercero wrote in an article for Bruegel.
André Sapir, a Belgian economist and a senior fellow at Bruegel, believes it’s too soon to predict an economic decoupling between Europe and the United States. “I think it is too strong to say that the EU-U.S. decoupling is underway,” he said, adding that Trump may decide to target individual member states with specific tariffs rather than the EU as a whole. “He has a strong obsession with bilateral trade balances. He may have targeted bilateral tariffs against all those that have a trade surplus with the [United States].”
But Brussel’s message is clear. It won’t be bullied and cower under pressure. “Bullying and deal-making may be President Trump’s everyday business, but in Europe we have replaced the law of the jungle with the rule of law,” Bernd Lange, chair of the European parliament’s trade committee, said. “Trump’s decision to impose heavy import duties on steel and aluminum is a clear breach of international law and we demand that the [United States] again play by the rules.”
Europe’s hope is that a deal with Trump can be made in time to stop the otherwise inevitable decoupling.
