The EU–US Trade Deal: A $750 billion commitment caught between supply security and climate strategy
On 27 July 2025, the European Union (EU) announced a trade deal with the United States (US), averting a potential 30% tariff escalation.[1] Failure to conclude negotiations risked a transatlantic economic relationship valued at $2 trillion annually, which is nearly 6% of global trade in goods and services.[2] In addition to tariffs, there is also agreement on EU purchases of energy products, and to work together on economic security, access to critical energy and investment facilitation. This blog examines some of the implications of this announcement, reflecting how it could shift the EU’s key trade relationships in energy and influence its progress toward achieving climate goals.
The terms of the deal
The deal sets a 15% base tariff on most EU exports to the US, effectively halving the previously threatened tariff rate. The agreed 15% baseline tariff is understood to be applied on an inclusive basis and not as an additive layer to pre-existing rates. Both sides appear to have agreed on zero-for-zero tariffs for a number of strategic products. This includes all aircraft and component parts, certain chemicals, certain generics, semiconductor equipment, certain agricultural products, natural resources, and critical raw materials. Officials also confirmed that […]
Chasing Windmills: Trump’s Brazil tariffs and the Latin American ‘backyard illusion’
On 30 July, President Trump issued an executive order raising tariffs on Brazilian goods by 40%, totalling 50% when added to the 10% baseline announced in April. Invoking emergency powers under the International Emergency Economic Powers Act (IEEPA) and the National Emergencies Act (NEA), the justification wasn’t an economic threat, but Brazil’s domestic legal actions, particularly Supreme Court measures against the spread of misinformation in social media platforms and the trial of former president Jair Bolsonaro, accused of undermining Brazilian democracy. This represents economic coercion, violating the principle of non-intervention, which prohibits interference in the domestic affairs of sovereign states, and WTO rules. The blog focuses on how these trade tariffs are a tool to achieve geopolitical goals in the pursuit of hegemonic leadership.
The executive order targeting Brazil breaches US obligations in the GATT: Article II:1(b), which binds it to agreed maximum tariff rates, and Article I:1 (most-favoured-nation treatment), which requires equal treatment of all WTO members. It doesn’t meet the requirements of a national security exception under Article XXI as interpreted by WTO jurisprudence. The measure also breaches Article 23 of the DSU, which prohibits unilateral trade retaliation. More than violating such commitments, the US administration […]
The Long Game beyond tariffs
The global economy faces a roller-coaster ride every time Mr. Trump is in the White House. Last time, a focus on controlling China’s growing economic power meant that the rest of the world narrowly escaped the wrath of the United States executive, with some tariffs on some sectors. This time around, things are quite starkly different: it is difficult to even know who constitutes a friend or a foe. All trading partners are now threatened with high horizontal tariffs in the name of “reciprocity”. Adding to this list of unknowns is the uncertainty around non-tariff policies, the uncertain implementation of non-binding deals, and the nature of an elusive collective response.
First, tariff and non-tariff policies.
Trump appears focused on tariffs, using import tariff threats to secure various trade concessions and other commitments. Unsurprisingly, the prevailing vexation of the rest of the world is regarding the higher tariffs on their exports to the US. There will certainly be losers both in the US and its trading partners, due to the shocks of tariff hikes. The hope is for a predictable and stable trading environment to be restored soon. However, while we worry about tariff hikes and policy uncertainty, we should not be blindsided […]
Trump’s trade deals: It’s not 1931, yet.
The overall impact of Trump’s actions may only represent a modest shock to the rest of the world, primarily because the US budget and trade balances are likely to widen due to the fiscal stance, which will boost US demand relative to output. However, there could be significantly different relative impacts on other countries. Ultimately, the final outcome will depend on whether the rest of the world magnifies or dampens these effects.
The spate of recent “trade deals” done by the US does not stabilise the world trade system; rather, it creates ongoing uncertainty. It’s not like 1931 when the Smoot-Hawley tariffs dramatically increased tariffs on all suppliers across the board simultaneously as US aggregate demand was collapsing, sending a huge macro-economic shock across the world. The US was the world’s biggest importer, and other countries worsened the situation by raising protectionist barriers against one another, e.g. the UK Tariff Act of 1932. Even though the new Trump tariffs are nearly as high as those of the Smoot-Hawley Tariff Act, the US accounts for only about 15% of world imports. At the same time, Trump is cutting taxes (on the rich) in a manner that is very likely to increase the […]
A few important steps forward: the UK-EU strategic partnership
The current UK Government is focused on delivering economic growth and positioning the UK as an important economic and diplomatic player internationally. The relationship with the EU is probably the most crucial bit in this jigsaw, and the deal struck on Monday, outlined in a “Common Understanding”, indicates the direction of travel: cautiously and selectively rebuilding closer relations with the EU along a number of dimensions, first and foremost on security and defence matters, but also including energy, environmental, and some economic aspects.
We will discuss three particular areas that are related to trade in the ‘common understanding’: fisheries and trade in agri-food products, youth mobility, and cooperation on energy markets and carbon emissions, respectively. We explain why the deal delivers in two out of three areas. More could have been done, and with firmer commitments. The document essentially represents a negotiating agenda with mostly aspirational language, whereby the two parties agree to “work towards” certain outcomes and everything has to be finally negotiated. Yet every journey starts with a single step, and the one taken on Monday is a sensible step in the right direction.
Fish and food: Significant departures from Brexit
A core, perhaps the main, EU demand […]
The UK-US ‘geopolitical’ deal: A dangerous precedent for the UK and the world
We are living in a geopolitical world. While states may cloak their actions in legal justifications or economic reasoning, trade has become a tool to assert power, control narratives, and forge alliances. Trade deals are being designed to reduce vulnerabilities, not barriers.
The recently announced US-UK deal is not a traditional trade agreement but a ‘geopolitical’ deal strongly reflecting the US’s geopolitical rivalry against China. Lacking the legally binding nature of international agreements, the deal sidesteps legal frameworks and instead stakes its importance on strategic alignment. As such, it signals a broader shift in how the US, which has its global leadership threatened by the rise of China as a superpower, now uses trade policy: not as a matter of market efficiency or legal commitments, but as an instrument of geopolitical influence and national security. Furthermore, the deal clearly shows the second Trump administration’s strong intention to force trade partners to collude with the US to squeeze China from global supply chains.
Securitising supply chains
At face value, the deal includes a few economic concessions, conditional on fulfilling security-related requirements. For example, the US has agreed to reduce tariffs on British steel, aluminium, and automobiles. In return, the UK will […]
Stroking a bear to get half a sandwich
The UK and the US announced the first bilateral post-Reciprocal Tariffs deal on 8 May, named the ‘U.S.-UK Economic Prosperity Deal’ (henceforth the US-UK EPD). The document published yesterday draws out the contours of this EPD, alongside some concrete initial proposals for reciprocal preferential market access for selected goods. Notwithstanding the negotiations starting immediately, this arrangement can be called off at any time, simply by the two parties giving each other written notice. Besides its symbolic and diplomatic relevance, what is the value of this emerging deal for the UK?
This is not a Free Trade Agreement. At first glance, it looks like a quid-pro-quo “mini-deal” of limited economic relevance that the US strong-armed the UK into accepting under the threat of tariffs. The UK is getting some respite from Trump’s tariffs in the (important) car and the (strategic) steel and aluminium sectors, in exchange for lowering tariffs on some agricultural products such as ethanol and beef, the latter on a reciprocal basis. But a closer reading of the ‘General Terms document’ suggests that it is more than this, and a lot worse.
First, as stated on page 1 of the text, the arrangement that the US and the UK reached […]
Bridge over the River Kwai or Road to Nowhere?
It is not often that there’s a genuinely new idea around in trade policy, but lo and behold, here’s one: a tariff on a service. US President Trump is considering a 100% charge on films made abroad. Spielberg would call it a close encounter of the third kind.
Although the charge would apply in principle to any foreign-made film, it could hit the UK film sector, part of its successful creative industries, particularly hard, turning it into the English Patient if the idea gained traction. But how could it even work?
Since services are intangible and non-storable, suppliers and consumers of services somehow need to come together for a service to ‘change hands.’ Internationally, this can happen in a variety of ways. For instance, the service may be delivered digitally via the Internet, as indeed it would be the case for a movie or an architectural blueprint. The consumer could travel abroad to enjoy a service (e.g. tourism), or firms could set up affiliates abroad to sell their services to local consumers (anyone who hasn’t done their groceries at Lidl or Aldi?). Lastly, a service supplier who is a natural person, such as a movie director, could travel to another country […]
The rise of China in the US backyard amid Trump Tariffs
The uncertainty caused by the trade policy actions undertaken by the Trump administration poses a serious challenge to the world, but particularly to regions that historically relied on the United States both as a commercial and political ally, such as Latin America.
The Trump 2.0 regime has levied a baseline 10% tariff on most Latin American countries[1], including those that have a Free Trade Agreement (FTA) with the US, such as Chile (2003), Peru (2009), Colombia (2012), and Panama (2012). The uncertainty surrounding the permanence of such measure (and the potential for further protectionist actions) will encourage these countries to seek and consolidate more secure trade links with like-minded partners, with more predictable trade policies. Such a shift has already been happening. The US has gradually been losing its relevance as the main trading partner for some Latin American countries, particularly those in the south, with one key actor playing a central part in this story: China.
China’s penetration in the South American market over this century has been taking place at different levels. Regarding trade, China has Free Trade Agreements in force with Pacific countries like Chile (2006), Peru (2010) and more recently with Ecuador (May 2024). Trade and […]
A beginner’s guide to tariffs: Why are they harmful?
Trump is using tariffs as his main international economic policy tool and is providing two conflicting narratives on why he is using them. On the one hand, he suggests that raising tariffs is the key to making America wealthy again: the US government will supposedly raise trillions in tariff revenue, manufacturing production and jobs will move back to the US, and the US trade deficit will finally shrink. On the other hand, tariffs are an instrument to bring countries to the table and negotiate a deal.[1] Yet, of the two narratives, only one can stand. To bring back jobs and reduce the deficit, tariffs must be permanent. If they are a negotiating tool, they must be temporary.
Leaving behind the motivations for the tariff increases, economists tend to disagree that raising tariffs will make America wealthier. Ever since the first round of tariffs on Canada and Mexico was announced, experts have warned about the negative consequences: prices for US consumers will increase, fewer products will be available, exports will fall, and economic activity (GDP) will contract. And this is just for the US. Since the US is a large market with the power to affect world demand and […]
