As we know, ‘tariff’ is the favourite word in the English language of the current US President – and the world is currently feeling and paying the price. During his first term, Mr. Trump started trade wars by imposing tariffs on inter alia the EU, Canada, Mexico and China. His second term commenced in the same fashion, with the imposition of tariffs on Canada, Mexico and China. The big shock followed on 2 April of 2025, when his administration imposed a 10% baseline tariff on almost all countries, and additional, individualised reciprocal tariffs on countries with which the United States runs a persistent trade deficit. In mid-July, Mr. Trump moreover threatened to impose a 30% tariff on imports from inter alia the EU, starting on the first of August.
A Doubtful Deal
Over the summer, the EU decided to bend the knee, rather than stand its ground and dare retaliate. Accordingly, Ms. Von der Leyen was happy to announce a comprehensive deal on 27 July, described in an earlier EU Law Live Op-Ed as a clever form of ‘appeasement on the back of empty promises’. On 28 August, the European Commission published a proposal to implement the EU-US deal. Article 1 of the document provides that the EU tariff on US goods will go down to 0%. In exchange, the US agreed to reduce its tariffs on EU goods from 27.5% to 15%.
While at first sight, the latter seems to be a (partial) win for the EU, the new rate in fact represents an increase compared to the pre-January 2025 tariffs. Journalists and economists have varying perceptions on the merits of the agreement. Some argue that, despite its welcome ambiguity, it is a bad deal if only for confirming the false narrative of the Trump administration relating to trade. Others argue that substantively, it is simply best the EU could get, and thus in true Godfather style, it resembled the offer that could not be refused.
While the classification in terms of ‘win or lose’ seems important at first sight, it matters less on second thought. The key issue remains that the EU-US deal is the result of economic coercion. It was reached through one actor putting the knife on the throat of the other. Hence, contrary to how diplomacy was understood until recently, we did not witness an outcome of genuine negotiations. Moreover, the Commission openly talked about it as a political agreement that is not legally binding. The EU therefore retains the ability to revoke and reverse any promise made without violating the principle of pacta sunt servanda. This holds even more since Bernd Lange, chair of the European Parliament’s international trade committee, admitted he is unsure he and his fellow law-makers are able to support the Commission’s venture.
The EU, lest we forget, is under a legal duty, from which can be distilled a moral responsibility, to uphold and promote a rules-based order of international trade. To that background, much time and energy was spent between 2021 and 2023 to craft the Anti-Coercion Instrument (ACI) – precisely to counter Godfather-like (or similarly subversive) practices. As we will argue, there are multiple reasons why indeed the earlier commitments should be rescinded, and the ACI deployed instead. These have much to do with, what may be called, the ‘signal value’ of the deal.
A New Trade War is Not Avoided, But Merely Postponed
Ms. Von der Leyen defended the agreement, arguing it was a conscious decision that avoided a trade war. Underlying her statement are two implicit assumptions. The first is that the EU cannot afford a trade war, because the costs will be too high, and Europe will likely lose it. Arguably however, while definitely not in the Union’s best interest, the alternative package isn’t either, since the US places most products under a flat rate of 15%. The second assumption is that by caving in, a full-blown trade war could be avoided. Yet in the worst case scenario, as Platon observed, only a little bit of time has been bought by giving Mr. Trump “a prima facie win [in order to] fine-tune the details” to its own advantage, after which the table is knocked over once again.
A continuous problem remains that the US under the Trump administration has proven to be a highly unreliable, unpredictable and unstable trading partner so far. Whereas the deal was announced on 27 July, and a joint statement with the EU issued on 21 August, less than a week thereafter Mr. Trump announced he will impose additional tariffs on all countries upholding digital taxes, legislation, rules or regulations. This obviously constitutes a direct attack on the EU’s digital rulebook, consisting inter alia of the Digital Services and Digital Markets Act. On 5 September, right after Google was fined for violating EU antitrust rules, he doubled down by threatening investigations that could end up with the US raising rates anew.
Keeping in mind that the raison d’être of concluding any agreement is to create reliability, predictability and stability, striking a deal with such a capricious partner is self-defeating. The result will never stand; rather, new requests and threats will follow. Ominously perhaps, while the Commission mentioned in its Q & A that stability and predictability have been restored for citizens and businesses, neither the White House’s factsheet nor the joint statement refer to these objectives. Instead, we find the usual Trumpian hyperbole of an act ‘making global history’, unleashing ‘the full potential of our combined economic power’. By the looks of it, new battle lines have already been drawn.
The Deal Undermines the EU’s Credibility
Not only has a doubtful message of submission been transmitted to Washington, the same may go for the rest of the world, entailing a further loss of credibility in protecting the EU’s larger interests. The potential waiver from the Carbon Border Adjustment Mechanism has for instance attracted the attention of other parties vying for similar exemptions – besides entailing an egregious violation of the WTO’s Most Favoured Nation principle. The loss of credibility will, in turn, have broader long-term implications for the EU and its Member States. More specifically, it undermines the European Economic Security Strategy that was so proudly announced by the Commission in June 2023. One of the four, non-exhaustive categories of risks identified there concerned the weaponisation of economic dependencies or economic coercion. In mitigation, the Commission adopted a three-pronged approach: promoting competitiveness, protecting economic security, and partnering with like-minded countries to strive for a resilient and secure economy. Under the second prong, the Commission mentioned other instruments next to the ACI, such as the Foreign Direct Investment Screening Regulation (FDISR) and Foreign Subsidies Regulation (FSR) that equally underline the creed of open strategic autonomy. These are the real trump cards, which ought not be discarded.
Pursuant to Article 1 of the ACI, the objective of the instrument is to deter or obtain the cessation of economic coercion. If there is no willingness to deploy it, the deterrence function will not work. This in turn will incentivise a country like China to (further) exploit the opportunity. The hesitance may equally be interpreted by third countries as an unwillingness to make use of the other instruments meant to ensure Europe’s economic security, such as the abovementioned FSR and FDISR. After all, if the manifest interference in the legitimate sovereign choices of the Union or its Member States is accepted (Article 2 ACI), why should the potential adverse effects of inbound FDI on the security or public order be considered problematic (Article 1 FDISR), or the direct or indirect distortion of the internal market caused by foreign subsidies (Article 1 FSR)?
The Deal Paves the Way for a Power-Based Trading System
As hinted at above, there is a final negative dimension to the EU’s deal-making and shying away from retaliation in this case, in that the EU hammered one more nail into its coffin as a former champion of global free trade. Whereas some of its past actions were already not that easy to reconcile with the rules of the WTO (see e.g. here and here with regard to CBAM, and here and here with regard to the FDISR), commentators believe this is raised to the next level by violating the basic principles of reciprocity and non-discrimination, as tariffs are being reduced on a preferential basis. Consequently, the deal paves the way for (re-)installing a pure power-based system, last seen in the early 20th century. As Lee argues, the “multilateral trading system was created to avoid repeating past mistakes and causing another destructive war over supplies and markets. Undermining this (…) might gain short-term advantages but will, as history has proven, in the long run, be damaging to the interests of all members’’.
Concluding Thoughts
Mr. Trump’s obsession with tariffs has produced some evident violations of international law, and turned his country into an outcast. Even if US Courts were to insist that the power to impose tariffs ought to revert back to Congress, the latter would currently be unlikely to go against Mr. Trump’s orders. Accordingly, instead of jumping on the same bandwagon, the EU can and should tackle the transgressions in a orderly and responsible manner, withdrawing from the July 2025 deal (if not unravelling anyway at the time of writing), and move to deploy the ACI in these entirely suitable circumstances. At present, instead of rising to the challenge, it sends out the troubling signal to other countries that economic coercion is something one must succumb to. Real allies never resort to threats, but attempt to sort out their differences amicably. Everything else would be mob rule. When there is no possibility to cut an honest mutually beneficial deal, one must toughen up, respond in kind, and play one’s own trump cards as available – applying counter-pressure with due legal cause, instead of aggressively pursuing unilateral advantage. Ultimately, in this way, the Union might earn an own ‘stable genius’ reputation.
To read the full op-ed as it was published on the EU Live Law website, click here.