EU faces dilemma

Take it or leave it? EU faces dilemma in tariff showdown with Trump.

The EU faces an agonizing choice between taking the deal on Trump’s desk or trying to drive a harder bargain.

By Antonia Zimmermann and Camille Gijs

A U.S. trade proposal that could land in the European Union’s inbox imminently will confront it with a momentous choice: accept a far-from-perfect offer now or gamble to secure last-minute exemptions for key industries. 

Earlier this week, Washington floated a deal that would lock in a baseline tariff of 10 percent and provide some relief to the European aircraft and spirits industries. 

And now the Donald Trump administration is claiming that a deal is imminent. 

“The European Union, to their credit, has now made significant, real offers” to open its agricultural and other markets, Commerce Secretary Howard Lutnick told CNBC on Tuesday evening. “The president’s got those deals on his desk, and he’s thinking about how he wants to play them.” 

Yet the document on Trump’s desk can hardly be described as a “deal.” Instead, it would represent a one-sided decision to set new tariff rates from Aug. 1. 

The U.S. president on Monday sent letters to 14 countries informing them that, absent an agreement, they will face higher tariffs from the start of next month. These were broadly seen as countries with which talks have failed so far. 

The European Commission, which has yet to receive any such notification, says its negotiating efforts have shielded the bloc from more tariffs. 

“Crucially, while other nations faced increased tariffs from the United States as a result of the letters that President Trump sent out on Monday, our negotiations have spared the EU from facing higher tariffs,” Maroš Šefčovič, the EU’s top trade negotiator, told European lawmakers on Wednesday.

“The agreement in principle we are striving to finalize is not the end, but rather the start of the new beginning … I see it as a foundational framework that paves the way for a future fully fledged EU-U.S. trade agreement,” Šefčovič said, before hopping on another call with U.S. counterpart Jamieson Greer. 

Playing defense

The prospect of a deal — whatever shape it might take — confronts the EU with a tricky dilemma: accept the offer on the table or try to drive a harder bargain after Trump postponed his tariff deadline by three weeks to Aug. 1.

“If we receive a letter from the U.S., we have to discuss whether we accept it,” senior European lawmaker Bernd Lange, who has chaired the European Parliament’s trade committee for over 10 years, told reporters on Wednesday. “A deal is not a diktat.”

Washington gave no indication in its offer this week, however, that it would exempt sensitive industries such as cars, steel and aluminum or pharmaceuticals, as requested by the EU. Nor has Brussels won any guarantees that Washington won’t make further U-turns on tariffs. 

So far, EU chief executive Ursula von der Leyen has portrayed her strategy — of mostly playing defense in the difficult negotiations — as working.

And she has a point: The EU hasn’t received a letter from Trump of the type sent to Japan and South Korea, threatening a 25 percent tariff on all exports. At least not yet.

Beyond the disastrous impact that such high tariffs would have on European exporters, von der Leyen is acutely aware that the bloc’s security at a time of Russian aggression is also at stake. This is forcing her trade team to tread carefully with Trump, who in addition to getting tough on tariffs has threatened to withdraw U.S. military support for Ukraine.

The Commission’s negotiation course, so far, broadly echoes calls by some of the EU’s heavyweight member countries, such as Germany or Italy, for a quick deal with the U.S. — even at the price of potentially painful concessions. 

Speaking at a Cabinet meeting on Tuesday, Trump said of the EU that “they’re very tough, but now they’re being very nice to us, and we’ll see what happens.” 

Toughening up

The question is: Does being nice get you anywhere? 

Not all diplomats and policymakers in Brussels think so. Lange, a German Social Democrat, has warned that a one-sided deal could fail to win the support of Parliament.

The U.K. and Vietnam — which have already sealed deals with the U.S. — “both wanted quick results and the U.S. emerged as the big winner in the end,” Lange warned in an interview with Germany’s RND newspaper group.

The extended deadline “plays in the EU's favor,” said David Kleimann, a senior trade expert at the ODI think tank in Brussels, pointing to pending U.S. court proceedings against Trump’s tariffs and internal coordination requirements within the EU.

That will, however, in large part depend on the EU’s willingness to strike a tougher tone in negotiations. The clock is ticking on its own deadline to launch a first round of countermeasures covering €21 billion in imports from the U.S. next Monday, when the bloc’s trade ministers are also due to meet in Brussels.

“If we don’t reach a fair trade deal with the U.S., the EU is ready to take countermeasures,” German Finance Minister Lars Klingbeil warned Tuesday in comments to the Bundestag.