On July 25, U.S. President Donald Trump and European Commission President Ursula von der Leyen had put on a public display, giving the impression that the U.S.-EU trade talks had a 50-50 chance of success and failure. Meanwhile, senior French economic officials were already calling for contingency measures in case the talks collapsed.
Yet, less than 48 hours later, the two sides announced in Scotland that they had finalized a large-scale trade agreement covering tariffs, investment, energy, and defense procurement. The deal once again followed the classic Trump-style negotiation modus operandi: first, ramp up pressure and create a sense of confrontation, then, at a critical moment, announce a dramatic turnaround to seize control of the media narrative.
According to the agreement, the U.S. will impose a flat 15% tariff on most EU products. This rate is higher than the EU's expected 10%, but lower than the previously threatened 20% or even 30%. Nevertheless, it is still more than ten times higher than the pre-Trump average U.S.-EU tariff rate of 1.2%. At the same time, both sides agreed to reduce tariffs to zero on several key sectors, including aircraft parts, chemicals, and agricultural products. Additionally, the EU committed to purchasing USD 750 billion worth of U.S. energy and arms over the next three years and to investing an additional USD 600 billion directly into the U.S. economy. Trump called the agreement one of the most significant trade deals ever, while some European political figures expressed pessimism about the deal. Certain members of the European public also viewed it as a major defeat.
According to data from the Office of the United States Trade Representative, the total value of goods traded between the U.S. and the EU in 2024 reached USD 975 billion, with the EU running a trade surplus of USD 235.6 billion with the U.S. Against the backdrop of a widening trade imbalance, this agreement is undoubtedly a key component of Washington's trade restructuring strategy.
Although the content of the agreement has sparked disagreements within the EU, many EU political leaders still generally support it, so the likelihood of it being approved and implemented is relatively high. For instance, German Chancellor Friedrich Merz publicly described it as preventing the "needless escalation in transatlantic trade relations." Leaders from countries like Italy and Ireland also welcomed the deal, while expressing that the details still need to be examined. Although some industry groups in France, Belgium, and other countries remain skeptical, under the EU's 27-member system, such limited opposition is unlikely to effectively block the agreement's progress.
Some commentators are of the opinion that the EU ultimately chose a compromise that could be accepted, as it bore certain tariff costs but still secured the avoidance of a transatlantic trade conflict through additional procurement and investment. The market responded optimistically. After the initial news of the agreement, the STOXX 600 index rose by 0.6% and both the FTSE Europe and Dow Jones Europe indices saw slight increases, indicating that investors generally believed the risks had decreased. In the U.S., Wall Street also believes that the impact of "Trump tariffs" may no longer cause the significant disruptions it once did, as the stock market has adjusted to the changes and is returning to normal.
It is worth noting that this agreement is not an isolated event, but rather a continuation of the Trump administration's strategy to reshape global trade rules. Analysts point out that, based on recent agreements between the U.S. and countries or regions like Japan, the UK, ASEAN, and others, the U.S.'s tariff arrangements and negotiation bottom lines are forming a clear "matrix."
Allied nations like the EU and Japan face tariffs around 15%, coupled with conditions such as tariff reductions on U.S. goods and expanded procurement and investment. Asian transshipment countries, including Vietnam and Indonesia, are subject to a 20% tariff, alongside measures to prevent the rerouting of Chinese goods through these regions. Smaller economies with lower trade volumes will see direct tariff impositions without negotiation. Meanwhile, major trade deficit sources, such as China, could face tariffs ranging from 40% to 60%, accompanied by significant negotiation and political pressure.
In other words, the U.S. is demanding that all surplus countries engage in a "market-for-surplus" exchange, i.e., opening markets, increasing procurement, and reducing non-tariff barriers. However, for China, the challenges brought by the U.S.-EU agreement should not be underestimated. The EU is China's second-largest export market after ASEAN, with the China-EU trade surplus reaching USD 247.1 billion in 2024, accounting for just over a quarter of China's overall surplus, or approximately 1.37% of GDP. The U.S.-EU trade agreement will have at least four far-reaching impacts on China:
1. Weakened Price Competitiveness: The EU applies zero tariffs on a large number of U.S. goods, while Chinese products still face tariffs ranging from 10% to 40%, directly undermining the price advantage of Chinese exports in the European market.
2. Increased Risk of Order Restructuring: Although the EU's newly announced USD 750 billion procurement plan is largely focused on energy and defense, it may also include categories that overlap with Chinese export products, potentially diverting orders from China in these sector.
3. Increased Risk of Trade Structure "Rebalancing": In order to maintain a balance in international payments, the EU may seek to reduce its trade surplus with the U.S. while actively narrowing its trade deficit with China. This could involve measures such as raising tariffs, setting new technical standards, or increasing import thresholds. The China-EU trade relationship may undergo a "rebalancing" process similar to that of U.S.-China relations.
4. Shifts in Investment Flows: The EU's commitment to a USD 600 billion investment in the U.S. over the next three years will constrain its capital allocation to other countries. Given that China's net FDI inflows have been negative for two consecutive years, the added pressure will further complicate China's efforts to attract foreign investment. Direct EU investment in China may continue to shrink.
Final analysis conclusion:
Overall, the U.S.-EU agreement is not only a successful example of Trump's tougher trade stance but is also reshaping the global trade system. As the U.S. "tariff matrix" comes into focus, countries must reassess their trade arrangements with the U.S. and the EU. For China, it is crucial to be alert of the EU potentially adopting a U.S.-style negotiation model towards it in the future. Therefore, China needs to proactively plan for export alternatives, market diversification, and supply chain security strategies in the context of a "de-surplus" scenario. Global trade is increasingly becoming a complex multidimensional game of power, interests, and institutional rules, rather than just a simple game of "comparative advantage + cost optimization."
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Zhou Chao is a Research Fellow for Geopolitical Strategy programme at ANBOUND, an independent think tank.
