On tariffs, the EU should avoid the recent NATO-style capitulation

On tariffs, the European Union (EU) should avoid following the NATO precedent of full compliance with US demands, writes Sir Michael Leigh, Johns Hopkins University, SAIS-Europe, in an exclusive commentary to EUalive.

While the US contributes the majority of NATO’s defense expenditure, the EU holds a larger share of global trade. During the extension until 1 August of the current trade ceasefire with Washington, Europeans should resist US divide-and-rule tactics, which risk undermining Brussels’ resolve. Instead of yielding to the latest demands from Washington or retaliating, the EU should focus on building alliances to reform and strengthen an open rules-based trade system.

Like much of the world, the EU is awaiting US decisions on whether to maintain tariffs of up to 50% on certain imports or reduce most to 10% in light of concessions made in negotiations. EU governments would see acceptance of a 10% tariff as damage limitation. But 10% tariffs, of questionable World Trade Organization (WTO) compatibility, would deal a blow to the world’s deepest trade, economic, and investment relationship. European capitals would be relieved that the worst was averted for now, but US tariffs would still remain at twice the average EU level, with the future uncertain.

In Brussels, discussions on how the EU should respond have largely focused on the choice between retaliation, as advocated by France, and what amounts to capitulation, even if presented as a negotiated compromise. However, there is little appetite for retaliation, and the tools designed to deter or counteract economic coercion remain unused.

Most European governments, mindful of their precarious parliamentary majorities and sectoral lobbies, favor acceptance of Trump’s demands, preferably with certain exemptions. Brussels has taken the hint, despite the EU’s own exclusive legal responsibility for trade.

But European leaders underestimate the EU’s leverage in global trade negotiations. In 2023 the EU still accounted for 14.3% of world exports of goods, while the US accounted for just 10.5%. The EU should use the next three weeks to firm up a coherent trade strategy, based on its strengths.

In late June there were momentary signs of this when EU leaders considered proposing a new WTO dispute settlement procedure, after successive US presidents undermined the existing appellate body. They also floated the idea of applying to join the twelve-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which the UK joined last year. However, EU leaders quickly retreated from these forward-looking ideas and instead edged toward accepting a general 10% US tariff, preferably with exemptions from higher tariff peaks in sensitive sectors.

The EU is uniquely placed to drive reforms to the international trading system in order to enhance trade cooperation, productivity and economic wellbeing. Trade under WTO rules has stimulated growth and jobs worldwide over the past thirty years. At the same time, the EU has concluded over forty WTO-compatible bilateral or multilateral trade agreements with more than seventy countries; negotiations are underway or awaiting signature with another dozen.

An ambitious EU-India trade agreement this year and the ratification of the EU-Mercosur Agreement, covering Argentina, Brazil, Paraguay and Uruguay, would reinforce the multilateral rules-based approach to trade. Such countries would welcome bold steps by Brussels to breathe new life into trade liberalization. At last week’s sparsely attended Rio de Janeiro summit, democratic countries seemed disenchanted with the BRICS, which, since expansion, has become an unwieldy, divided, largely authoritarian club and an instrument of Chinese foreign policy. But Trump’s subsequent threat to punish critical BRICS countries with higher tariffs elicited a sharp response from several of their leaders and may have strengthened the group’s aim of reducing economic and monetary dependence on the US.

As a major global trade player, the EU should promote trade policies that reflect the principles of sovereignty, international law, multilateralism, a stable business climate, and market confidence. Conceding to coercion usually encourages further demands. Europeans should be wary of making concessions for what might turn out to be an ephemeral “deal”.

Instead of retaliation or de facto capitulation, the EU should stand firm and rely on Americans themselves ultimately rejecting measures which will do little to bring manufacturing back to the US, close America’s trade deficit or make up for lost tax revenue. Instead, the EU should reach out to like-minded partners around the world to continue liberalising trade, reforming multilateral institutions and strengthening dispute settlement procedures.

Such an approach would strengthen the principles on which the EU itself is based, advance its broader international agenda and ensure its continued relevance in the years ahead. The EU possesses the resources and resourcefulness to ease any short-term costs, knowing it is acting in the enduring interest of Europeans and like-minded nations.

Caption: NATO chief Mark Rutte (R), along with outgoing Dutch Prime Minister Dick Schoof (L), welcomes U.S. President Donald Trump (C) to the World Forum for the NATO Summit in The Hague, The Netherlands, 25 June 2025. The Netherlands, for the first time in NATO’s history of existence, is hosting a NATO summit. EPA/KOEN VAN WEEL