President of the European Commission Ursula von der Leyen speaking on the phone as she arrives for a EU Summit, at the EU headquarters in Brussels, on March 24, 2023; and (R) U.S. President Donald Trump waiting to speak on the phone in the Oval Office at the White House in Washington, DC, on June 27, 2017.
John Thys and Nicholas Kamm / AFP
After weeks of tension over the trade war, the EU and the U.S. have finally issued a ‘joint statement.’ The document is intended to provide more details on what EU Commission President Ursula von der Leyen agreed with U.S. President Trump on at the end of July. However, as EU Commissioner Maroš Šefčovič states, ‘This is not the end, but the beginning. This is only a first step.’
Importantly, with this agreement, Trump is committing to a tariff cap of 15% for most products, including medicines. This provides some breathing space for European imports, although steel and aluminium are excluded from the deal. Compared to 2024, it signifies a step backwards: at that time, for example, medicines were completely exempt from import duties. The European pharmaceutical sector could lose up to 18 billion euros as a result, despite exceptions for generic drugs.
Furthermore, the U.S. will reduce its import duties on European cars and parts from 27.5% to 15%. In exchange, Brussels will abolish all import duties on American industrial goods, including the 10% currently applicable to cars. In addition, both parties recognise each other’s product standards, a victory for consumer choice.
The European Union has little to no impact on Trump’s whims, but it is able to adjust its own policy. The EU must therefore seize this opportunity to implement a fundamental change of course. Among other things, the extremely expensive green policies of recent years must be scrapped. Many of the measures of the so-called Green Deal are not yet in place anyway, so this can hardly be called a major political effort. These include, for example, the ban on combustion engines, but also the extension of the European climate tax, ETS2, to gas-heated homes and petrol and diesel cars. This threatens to hit European consumers hard, with annual energy bills rising by hundreds of euros. If it is not done to appease Trump, it must at least be done for the sake of the European economy.
Jim Ratcliffe, founder of chemical giant Ineos, said earlier this year about the EU’s emission trading system, effectively an EU climate tax:
While China is industrializing at an unprecedented pace and the United States has followed suit with tariffs, Europe is mainly de-industrializing. Energy costs are several times higher and the cash here has to go mainly to carbon taxes instead of investments. That is how the life is being squeezed out of our industry.
Trump’s pressure seems to push the EU in the right direction here. In the joint statement, the EU has made some vague commitments to address U.S. concerns about EU legislation on mandatory sustainability reporting (the Corporate Sustainability Reporting Directive), supply chain monitoring (the Corporate Sustainability Due Diligence Directive) and deforestation (the EU Deforestation Regulation). The EU commits to ensuring that its rules “do not pose undue restrictions on transatlantic trade”.
Importantly, with regard to another new green initiative, the EU’s new deforestation directive, which imposes all kinds of bureaucratic obligations on trading partners, the EU has stated that it recognises that U.S. commodities production “poses negligible risk to global deforestation.” At the request of the United States, the European Commission actually already announced in May that it would exempt imports of American products covered by the new European deforestation directive by classifying them as ‘low risk.’
The directive not only led to a dispute with the United States. Southeast Asian palm oil producers, such as Malaysia and Indonesia, also protested. These governments now consider it unfair that their imports are classified as ‘normal risk,’ in contrast to the U.S. classification of ‘low risk,’ especially given that the problem of deforestation in countries such as Malaysia has greatly improved, with a decrease of 13% last year.
In addition, 18 of the 27 EU member states recently demanded further changes to this anti-deforestation directive, which is due to take effect in January 2026. According to Reuters, the reason is that some producers simply cannot be expected to meet the conditions, which would also put them at a competitive disadvantage. As the directive also applies to exports, governments fear that companies will simply leave the EU as a result.
Importantly, the joint statement furthermore emphasises that the European Commission ‘is committed to working on additional flexibility in the implementation of the CBAM’. CBAM stands for ‘Carbon Border Adjustment Mechanism’. It is an effective climate customs tariff that the EU wants to impose on trading partners that do not sufficiently copy its expensive climate policy. Turkey, Ukraine, and Serbia are expected to be proportionally hardest hit by this new EU climate tariff, but it will also affect the poor African economies and India. These trading partners will now certainly be encouraged to demand relief from this protectionist EU measure, now that Trump has succeeded in doing so. Given how this debate will continue, the EU should now seize the trade tensions with the United States to abolish some of its green policy excesses. CBAM and the new green regulations cited above should therefore be on the chop.
Similarly, the EU should reconsider many of its digital regulations, which not only undermine innovation, like the AI Act, but also free speech, like the Digital Services Act. The U.S. believes that European digital regulations also constitute a ‘non-tariff barrier.’
Nevertheless, this issue ‘was kept out of the trade negotiations,’ according to Šefcovič. But a new study by the CCIA Research Centre shows that EU regulations on digital services cost U.S. companies a huge amount of money—up to $97.6 billion per year, with a conservative estimate of $38.9 billion. Do Eurocrats really think that the U.S. will just accept this? As Šefcovič has also pointed out, there is still a lot to be negotiated, for example, on the abolition of the new U.S. tariffs on wine and spirits, something that EU negotiators have not been able to prevent. It is certain that the U.S. will not hesitate to link the two issues.
The following illustrates the importance of this topic in the U.S.:On July 25th, the Republican majority in the House Judiciary Committee also published a report entitled “The Foreign Censorship Threat: How the European Union’s Digital Services Act Compels Global Censorship and Infringes on American Free Speech.” This Republican-drafted report states that the DSA, “camouflaged as a regulation to increase online safety,” is in fact “a powerful censorship law that gives European regulators the ability to suppress speech globally with which they disagree.” The report contains a number of examples demonstrating how the DSA crosses the line, recalling, amongst others, the threatening letter then-European Commissioner for Internal Market Thierry Breton sent to Elon Musk last year, as his X platform was about to host a live campaign interview with then-presidential candidate Donald Trump.
Reconsidering the EU’s new digital regulatory regime is not only necessary because the U.S. is asking for it or because the new rules pose a direct threat to freedom of expression. It should be obvious that Europe’s future competitiveness is closely linked to openness to digital innovation. American digital players have already decided not to make a number of AI services available within the EU because of European regulations. Does Europe really want to continue down this path?
