EU closes in on US trade deal, testing bloc’s unity

Donald Trump says EU tariff letter was ‘about two days’ away. Terms of a potential agreement could benefit some European countries more than others, sparking divisions.

President Donald Trump speaks during a cabinet meeting at the White House. Picture: AP /Evan Vucci

President Trump threatened to reimpose so-called reciprocal tariffs on the European Union, saying he is just days away from sending the 27-nation bloc a letter that would outline what tariffs it would have to pay on August 1.

“We are about two days off from sending a letter,” Trump said during a Cabinet meeting on Tuesday (Wednesday AEST). He stressed that he is still talking to negotiators from the bloc, but that he is displeased with European policies toward US tech firms.

On Monday, the president notified 14 nations, mostly in Asia, of looming rates largely in line with his April “Liberation Day” blitz, and signalled some wiggle room for striking deals. He extended the grace period on sweeping levies to August 1, from July 9.

“No extensions will be granted,” Trump posted in a Truth Social post on Tuesday morning (Wednesday AEST), which repeatedly stressed the “AUGUST 1, 2025” deadline.

Negotiations with the Trump administration are testing European cohesion as the bloc inches toward a potential trade deal with the US.

European Union officials are closing in on the outline of a deal that includes tough concessions for the bloc. Agreement isn’t certain.

Germany and other export-driven economies have advocated a speedy resolution to limit economic damage from US tariffs. France and several others say they too want a deal, but have shown more preference for pushing back against US demands.

Any deal is expected to retain 10 per cent tariffs for most European goods, people familiar with the matter said, and it is unclear what relief, if any, the EU can secure for its automotive and steel sectors, which already face tariffs of 25 per cent and 50 per cent respectively.

The European Commission, the bloc’s executive body, on Monday told member states that it would continue negotiating with the US ahead of the July 9 deadline that Trump had previously set, people briefed on the meeting said. The White House, meanwhile, said Trump was extending a pause on higher tariffs to August 1, effectively giving the EU and other trading partners more time.

Commission officials told members the bloc’s options boil down to accepting an agreement that heavily favours the US or rejecting a deal and facing more unpredictability, an EU diplomat said.

European Commission president Ursula von der Leyen. Picture: AP /Pascal Bastien

The US has suggested it could exempt some sectors from its 10 per cent across-the-board tariffs, including Europe’s aircraft industry, spirits and some medical technologies, people familiar with the negotiations said. But they emphasised that any exemptions would require Trump’s sign-off, which they said wasn’t certain. Negotiations on these exemptions could stretch long after an agreement in principle is reached and announced, officials said.

The talks put the EU in a bind, with the effects of a deal likely to ripple through the bloc’s 27 countries in different ways, testing their unity.

German Chancellor Friedrich Merz said on Thursday he “would prefer quick and simple to slow and complicated.” The country’s chemicals industry, the pharmaceutical sector, capital goods manufacturers and carmakers were all in need of urgent relief, he said.

French President Emmanuel Macron, meanwhile, has at times advocated for Europe to impose duties on the US. He said last week that the EU should offset any US tariffs with a response that would “encourage the dismantling of all this.”

The differences suggest cracks following months of EU cohesion on trade. Leaders have repeatedly emphasised — including in meetings with Trump — that the European Commission handles all trade policy for the entire bloc. Early fears that Trump might try to target individual members or negotiate side deals didn’t materialise.

Portuguese cork producers, part of one of the country's most important export sectors, are facing growing uncertainty as the United States moves forward with plans to introduce new tariffs on a range of European products. Picture: Adri Salido/Getty Images

National leaders have publicly supported EU trade chief Maroš Šefčovič and have praised the commission for its regular updates on negotiations.

“The EU has been able to maintain an impressively high level of unity through all the earlier phases of the negotiations,” said Andrew Small, a senior trans-Atlantic fellow with the German Marshall Fund who helped the European Commission prepare for Trump’s second term as president.

“We’re now into the crunch phase, where there’s going to be very different impacts for different economies, and it’s going to be harder to hold all of this together,” he said.

Germany, Italy and Ireland are the EU’s top exporters to the US. Germany is the EU’s biggest exporter of cars and car parts to the US. Ireland is a major exporter of pharmaceutical and medical products. Many other countries are less dependent on the US and don’t have as much at stake in negotiations.

“The Germans and the Italians are much more eager to get a deal done, and therefore they will be more eager to accept whatever it is,” said Maria Demertzis, chief economist for Europe at the Conference Board, a global think tank with headquarters in New York. “They prefer certainty to uncertainty.”

France, Spain and several other European countries, by contrast, have less to lose if US tariffs surge and prefer to push for a better deal, Demertzis said. Divisions among member states on trade policy aren’t unusual and ultimately leave the commission with a freer hand to negotiate for what it believes is best for the bloc as a whole, she added.

US President Donald Trump delivers remarks on reciprocal tariffs on April 2. Picture: AFP

A commission spokesman said Monday that the bloc is in constant contact with member states at all levels.

“The idea is that together we reach a negotiated outcome which is in the best interest of our citizens, and that’s what we’re working on,” he said.

Several European diplomats said France and Germany may not be as far apart as their leaders’ comments suggest. Germany has backed the commission’s efforts to prepare countermeasures in case trade talks fail, they said, and France — like many other EU countries — has softened its stance in recent weeks on terms it might accept.

Merz spoke with fellow European leaders in recent days to co-ordinate positions, a spokesman for the chancellor said. He had separate calls with Macron, Italian Premier Giorgia Meloni and Commission President Ursula von der Leyen.

Von der Leyen also spoke with Trump on Sunday. A commission spokesman said the two leaders “had a good exchange” but declined to provide further detail.

One sticking point in the EU’s negotiations is whether the US will grant any relief to EU industries such as autos that have already been hit — or could soon be — by Trump’s sectoral tariffs.

Berlin has backed a proposal made by some German automotive manufacturers several months ago to address 25 per cent tariffs on the sector. Under the plan, European carmakers that produce in the US would be entitled to export one car tariff-free to the US for every car they make in the US and export to Europe.

The system would favour BMW and Mercedes-Benz, which produce in the US for export. It wouldn’t help Volkswagen, Germany’s largest manufacturer, or French carmakers, which don’t export from the US.

Some European officials and diplomats have expressed scepticism about such an arrangement. Negotiations over the car sector were inconclusive as of Monday, people familiar with the matter said.

Europeans understand at this point that any deal they negotiate with the US is going to leave the bloc in a worse position than it was before April, when Trump announced his so-called reciprocal tariffs, Small said.

The question is, he said, “What version of a bad outcome do you want?”

Wall Street Journal