The EU’s deal with Trump could blow up at any time

Poor Ursula von der Leyen. Various European Union leaders heaped abuse on the European Commission President for having capitulated to Donald Trump’s trade demands. The accusations were unfair. Yes, the U.S. President bullied her into accepting 15-per-cent across-the-board tariffs. But only Britain, at 10 per cent, did better among the dozens of countries that tried – and spectacularly failed – to outplay him.

French Prime Minister François Bayrou described the EU-U.S. agreement, struck July 27 at Mr. Trump’s golf resort in Scotland, as a “dark day” for the EU. French President Emmanuel Macron said the EU, the world’s largest trading bloc, had not been “feared” enough by the White House negotiating team. Michel Barnier, the EU’s former Brexit negotiator, called the U.S. tariff, which is more than three times the average rate of 4.5 per cent applied on EU products before Mr. Trump took office in January, as an “admission of weakness.” German Chancellor Friedrich Merz said the tariff would inflict “considerable damage” on his country’s economy, which shrank by 0.2 per cent last year.

Could Ms. von der Leyen have done better? Possibly, but not easily. Retaliating with a barrage of countertariffs would risk igniting a lengthy transatlantic trade war that could cripple the EU’s main exporting industries, including cars, pharmaceuticals, industrial machinery and wine.

The details of Trump’s trade deal with the EU

She apparently took solace in agreeing to a tariff that was half the level initially threatened by Mr. Trump. Her goal was damage limitation, not a long-shot victory. She knew the EU had no allies. Indeed, it was every country for itself as Mr. Trump took on the role of the schoolyard bully. If, say, the EU, Britain, China, Japan, South Korea and Canada had in unison devised a retaliatory response – a sort of D-Day trade assault on Fortress America – Mr. Trump might have done the capitulating. But they didn’t, handing him the advantage.

Ms. von der Leyen salvaged what she could of her reputation. “We have a trade deal between the two largest economies in the world, and it’s a big deal,” she said. “It will bring stability. It will bring predictability.”

Time could easily prove her wrong. That’s because the deal she touted was little more than a handshake agreement, maybe nothing more. “The problem is that this is an arrangement concluded under Trump’s executive powers, not a legally binding agreement approved by Congress,” Canadian trade lawyer Lawrence Herman told The Globe and Mail. “It means that Trump, who doesn’t believe anything can constrain his authority over tariffs, can always claim the EU hasn’t lived up to its commitments and jack up duties in the future.”

For Mr. Trump, tariffs are not only about trade. They are also about investment commitments. The headline figures pledged so far look impressive on paper but may be impossible to achieve, giving him an excuse to accuse the EU (or Canada or Japan or anyone else) of breaching any trade agreement, triggering punitive tariffs.

As part of the agreement with the United States, the EU agreed to buy US$750-billion of American energy (mostly liquefied natural gas and oil) over three years. Good luck with that. The U.S. Energy Information Administration said that, in 2024, worldwide U.S. energy exports came to US$318-billion. If the EU keeps its pledge, there will be little American energy left for any other country.

At the same time, according to Mr. Trump, the EU has committed to invest an extra US$600-billion in the United States by 2028 (Japan’s pledge was US$550-billion). This is nonsense. Ms. von der Leyen cannot order European companies to invest certain amounts in certain countries; such decisions can only be made by the companies’ executives and directors. Of course, the EU could encourage investments in the U.S. by backing corporate loans, but that sort of financial engineering seems highly unlikely.

Carney, the foreign-policy risk-taker

Mr. Trump’s tariffs crusade is also guilty of making them political. He said Canada’s plans to recognize a Palestinian state would make it “very hard” to reach a new trade agreement between the two countries. He hit Brazil with 50-per-cent tariffs after the Brazilian Supreme Court ruled against his friend and one-time ally, former president Jair Bolsonaro. This week, Mr. Trump threatened India with higher tariffs because it is buying Russian oil.

What if several more EU member states were to recognize Palestine, as France recently said it would do? Would Mr. Trump vent his rage by jacking up the tariffs on the EU? That scenario cannot be discounted, all the more so since Mr. Trump can shred his trade deals on a whim.

Faced with a nasty and powerful bully, Ms. von der Leyen did the best she could in negotiating the trade deal. There is a tentative peace agreement, but it could be short-lived and turn ugly at any moment if Mr. Trump wakes up in a bad mood. There is a lesson for Canada: Nothing short of a congressionally approved trade deal is worth the paper it is written on.