Europe Has No Option But to Accept Trump’s Tariffs

America has reportedly offered Brussels a deal to maintain a 10% tariff on all European Union goods, as it sends out missives to the countries affected. Some time this week, Donald Trump will sit down and write a letter to the Europeans with his big pen, informing them what trade deal they have just agreed to. This could cause havoc, because the Union is far from united. France and Germany are on opposite sides; Italy is with Germany; Spain is with France; and Denmark, the current holder of the EU presidency, is on France’s side too.

The best possible outcome for Europe may just be a 10% blanket rate for general trade, as well as prospective measures for the Section 232 tariffs on cars, steel and aluminium. The tariffs will apply from 1 August, to allow time for the agreed measures to be implemented. One mitigation scheme would be to apply the car tariffs not on gross but net imports. Some of the German carmakers — such as BMW, Mercedes and VW — have US plants from which they export cars to the rest of the world. These exports would be offset. While this scheme sounds like a relief, it actually constitutes a massive incentive for European car companies to shift production to the US. The more you produce there, and the more you export from there, the better the deal.

An even bigger problem is what Trump might list as conditions for this deal. Will he insist that the EU no longer impose any fines on US digital companies? Will he insist that the EU agrees to open up its agricultural markets to American beef and other agricultural products, or any other surprises? Will there be a majority for any of this in the European Council?

For all these questions, answers are hard to find. The agreement would need support from a qualified majority of EU members. If two large countries, in this case France and Spain, are in the No camp, they are not far off a blocking minority. There are as of yet no signs from the EU that preparations are underway for an opening-up of agricultural markets. This would be a dealbreaker. A working assumption is that the main quid pro quo is on policies the European Commission can deliver itself. The Commission has degrees of freedom, for example, on how it applies the Digital Markets Act. But Europeans have to be careful about how this is worded in a trade deal.