I must say that the commentary surrounding Sunday’s so-called trade agreement between the US and EU has been almost universally “Trumpian” in its analysis.
Nearly every commentator emphasises that Trump has “won” whilst the EU has capitulated. From Frankfurt to Paris, from Dublin to Copenhagen, the narrative is one of European defeat in the face of American economic bullying.
So let’s examine the facts instead of the rhetoric.
The Pre-Trump Baseline
Before Trump’s return to the White House, there was widespread free trade between the EU and USA, save for a handful of selected goods. The average US tariff on EU imports stood at a mere 1.2%—a testament to decades of trade liberalisation.
This was an excellent situation. Economists have known since Adam Smith’s Wealth of Nations in 1776 that free trade trumps protectionism. David Ricardo subsequently taught us that the value of trade lies in each country producing what it is RELATIVELY best at—the principle of comparative advantage that has underpinned global prosperity for two centuries.
Prior to Smith, mercantilism dominated economic thinking. According to mercantilist doctrine, the purpose of trade policy was to maximise the trade surplus—or exports. This is precisely how Trump thinks about trade.
But the lesson from Smith and Ricardo is that we should focus on the division of labour and the consumer, not on crude trade balance arithmetic.
The New Reality: A 15% Baseline
When Trump threatened to impose tariffs, the EU had limited options. The deal, which imposes a 15 percent tariff on most European goods, came after a private meeting on Sunday between US President Donald Trump and European Commission President Ursula von der Leyen in Scotland. Yes, this disrupts the division of labour. But this was also the situation BEFORE Sunday’s “agreement” (we still don’t know the full details—as always with Trump, there’s more bluster than substance).
What would the perfect agreement look like? If we’re to heed Ricardo and Smith, it would be zero tariffs—both ways.
We haven’t achieved that, but here’s what’s remarkable: Announcing the agreement, Trump said the E.U. will not impose a tariff on U.S. imports. In other words, the EU has moved towards MORE free trade, not less. The bloc has committed to maintaining zero tariffs on American goods whilst accepting a 15% levy on its own exports.
This is, all else being equal, GOOD for European consumers and producers.
The Asymmetry That Matters
What isn’t good, naturally, is Trump’s 15% tariff on European exports to the USA. This certainly affects European exporters. But let’s be clear about who bears the greatest burden here: American consumers and producers will pay the lion’s share of these costs through higher prices and reduced competitiveness.
It’s worth remembering that trade is a positive-sum game, not a zero-sum contest. When I hear commentators proclaim that Europe has “lost,” it sounds eerily like Trump himself, who persistently misunderstands trade as a win-lose proposition.
The EU could have escalated the trade war. Brussels had prepared a long list of retaliatory tariffs targeting everything from beef and beer to Boeing aircraft and car parts. That would have been a replay of the 1930s trade catastrophes when global commerce collapsed.
We’re not getting that. Instead, we’re getting LOWER EU tariff rates—indeed, zero tariffs on US goods. Yes, we face tariffs on our exports. That’s not ideal, but it’s primarily American consumers who will foot the bill.
The Numbers Tell a Different Story
Consider what Trump initially threatened versus what materialised:
- Initial threat: 30% tariffs on all EU goods
- April position: 20% “reciprocal” tariffs
- Final agreement: 15% baseline with significant carve-outs
A “zero-for-zero” scheme will apply to aircraft and related components, semiconductor equipment, critical raw materials and some chemical and agricultural products. Moreover, For the auto industry, for which the current tariffs of 27.5% were almost halved to 15%.
I’m genuinely pleased that the EU has let reason prevail and avoided escalating a trade war. It would have been economically senseless and would have led to inflation and stagnation across Europe. Now we get to maintain ZERO import tariffs—likely contributing to lower inflation in the coming period.
The Broader Economic Context
We must also remember that the USA today consumes excessively—both publicly and privately. A correction is inevitable. Americans must pay higher taxes to close the massive federal budget deficit.
Tariffs are an absurdly inefficient way to raise revenue, but the alternative would have been lower public spending combined with the introduction of a federal VAT (which would have been my recommendation). Regardless, Americans must consume less. And they will. Yes, this means reduced European exports to the USA.
The Investment “Promises”
What about the EU’s “pledges” to “invest” in the USA? Trump, the deal also includes that all European Union countries will be “opened up for U.S. goods” at 0% and the bloc will invest $600 billion in the U.S. Frankly, I doubt this will amount to much. This is vintage Trump theatre. We saw the same performance with the Japan trade agreement—Trump announced massive Japanese “investments” that Tokyo couldn’t recognise in the actual agreement.
The Bottom Line
So what should we conclude? We’ve secured an agreement that leaves European consumers BETTER off than before. We’ve avoided or postponed a trade war. American consumers will bear the cost of Trump’s tariff folly.
All told, whilst everyone claims the EU has “lost,” European consumers have actually WON. Credit to the EU’s negotiators for this outcome. They may not even realise it, and they’ll be savaged in the press, but this is actually a good day for Europe.
We must lament that Trump behaves like an economic illiterate, attacking international trading systems and attempting to dismantle the liberal world order. But escalating the trade war would have been monumentally stupid.
The Path Forward
The EU should continue down this path—we need ZERO tariffs on even more goods and with even more countries. “We have a deal. We have a trade deal between the two largest economies in the world, and it’s a big deal, it’s a huge deal,” she said. “It will bring stability. It will bring predictability.” The EU must urgently begin negotiating with major trading partners—Japan, South Korea, and the UK—for zero-tariff agreements.
And again, let’s stop thinking about trade like Trump does. It’s not about maximising exports. It’s about the division of labour and lower prices for consumers. The mercantilist obsession with trade surpluses died with Adam Smith in 1776. Let’s not resurrect it now.
A Final Thought on Economic Literacy
What’s most disturbing about this entire episode isn’t the tariffs themselves—it’s the economic illiteracy they reveal. When supposedly sophisticated European commentators adopt Trump’s zero-sum view of trade, we’ve truly lost the plot.
The gains from trade don’t come from running surpluses. They come from specialisation, from competition, from the creative destruction that forces firms to innovate. When we impose tariffs, we don’t protect jobs—we protect inefficiency.
The EU’s negotiators may have just pulled off one of the cleverest moves in recent trade diplomacy: maintaining completely open access for American goods whilst accepting temporary tariffs that American consumers will largely pay. It is not perfect (that would be complete free trade), but it is much, much better than European consumers would pay massive higher prices than today.
