Executive Summary
- Over the course of summer 2025, the European Union (EU) engaged in negotiations with the United States (U.S.) to reach an agreement aimed at preventing a trade escalation. The resulting agreement, formalized in a Joint Statement on August 21st, involved a number of trade concessions by the EU. These were, however, voluntary, motivated by the goal of stabilizing the relationship and securing continued U.S. support for Ukraine.
- The agreement remains fragile. Many tariff-related provisions remain to be further negotiated with the U.S. and have to go through the EU’s legislative procedure. In parallel, the EU has undertaken a broad range of non-tariff commitments in areas such as energy, defense, investment, environmental policy, and digital regulation. Many of these fall outside the EU’s direct authority or require lengthy and intricate implementation processes.
- Should these commitments be called into question, the EU faces a difficult choice between activating trade defense measures or adopting a tempered response that safeguards its broader security interests.
- Amid this prolonged uncertainty, the EU is actively pursuing a strategy to diversify its trade partnerships and reduce reliance on any single partner.
- The European Commission – responsible for negotiating the EU’s trade agreements – has established a monitoring taskforce to assess the spillover effects of U.S. policy on trade flows involving China. This initiative comes as the U.S. intensifies pressure on the EU to align its approach to China.
- Over the past year, the EU has accelerated its trade diplomacy, prioritizing the conclusion of free trade agreements (FTAs). Particular attention is being given to finalizing the FTA with Mercosur countries — after more than 25 years of negotiations — as well as with Mexico and India, while also advancing discussions with Indonesia, Thailand and the Philippines. This year also marked the launch of trade negotiations with the United Arab Emirates, the first initiative of its kind concerning a Gulf country.
- In response to changes in global economic dynamics, the EU is also seeking to conclude new, more flexible forms of partnerships such as the digital trade agreements about to be concluded with South Korea and Singapore, which should further facilitate cross-border data flows.
1. EU-U.S. Trade Relations: State of Play
EU-U.S. relations have fluctuated since the successive measures introduced by U.S. President Donald Trump earlier this year, which have increased pressure on third countries to renegotiate their bilateral trade terms — often without a clearly articulated objective.
Throughout the ensuing months, the European Union bought time by entering into negotiations with the United States, making use of it to assess its economic options, consisting either in limiting the immediate impact or preparing for a long-term response that could at least mitigate dependency on trade with the U.S.
While the EU initially sought to separate economic and security considerations, it became increasingly clear that strategic imperatives — particularly the need to preserve U.S. engagement in Ukraine — were central to its decision-making. Prominent voices, including António Costa, President of the European Council, and Sabine Weyand, Director-General for Trade at the European Commission, have acknowledged that they played a decisive role in the EU’s acceptance of the political agreement reached in late summer 2025.
The agreement, formalized through a Joint Statement, has faced substantial criticism within the EU, particularly regarding the perceived concessions made to Washington. Implementation is now underway, but given the complexity of the measures involved, this is likely just a chapter in a much longer story. Negotiations on key issues, including global trade in steel, continue to be carried on.
1.1. EU-U.S. Deal: Where it Stands
By agreeing to the Joint Statement on Reciprocal Fair and Balanced Trade, the European Union secured — at least for now — Most Favored Nation(1) treatment for several goods exported to the United States. The EU also committed to implementing a range of measures that go beyond tariff adjustments, which will require complex, long-term execution.
On the U.S. side, implementation is underway. Executive Order 14346, issued on September 5th, followed by a Federal Register notice on September 25th reduced tariffs on EU automobiles and parts to 15%, retroactive from August 1st. It also applied MFN-only tariffs to agreed EU product groups starting September 1st. These measures replaced the 10% baseline tariff introduced in April 2025 and exempted several categories of EU imports, namely aircraft, natural resources and pharmaceuticals.
On the EU side, the implementation process is just kicking off. On August 28th, the European Commission released a proposal for a regulation which now has to go through the ordinary legislative procedure, involving both the European Parliament and the Council. This proposal seeks to implement the tariff-related provisions of the Joint Statement, i.e.,:
- Elimination of customs duties on industrial goods originating in the United States;
- Suspension of ad-valorem (percentage-based) duties on selected agricultural and seafood goods;
- Opening of tariff quotas for certain U.S. agricultural, industrial and chemical goods, thus allowing for limited quantities to be imported at reduced or zero tariffs.
Beyond tariffs, the EU has committed — to varying degrees — to a range of sectoral measures. In some sectors, implementation remains uncertain as the boundaries are blurred. This is due to the commingling of competences between the EU and Member States which are market driven. Other areas such as Green Deal-related commitments can provide quick wins:
- Energy: The EU has signaled its intention to procure approximately $750 billion of U.S. liquefied natural gas, oil and nuclear products through 2028. In practice, the EU cannot mandate purchases by entities on the Single Market. For now, the European Commission has announced it will coordinate purchases via an existing platform, AggregateEU, originally created to address energy shortages following sanctions on Russia.
- Chips: The EU would purchase at least $40 billion worth of U.S. AI chips for its computing centers and prevent re-exports to third countries. Similarly, the EU has limited means to directly purchase such technologies, except for research and developments programs such as the newly announced AI Gigafactories. Demand would have to come largely from European actors — which anyhow are fully dependent on U.S.-designed hardware for AI.
- Investment: EU businesses are expected to invest an additional $600 bn in the U.S. through 2028. According to European Commission officials, this figure is based on aggregated investment intentions shared by businesses with the European Commission.
- Defense: EU countries would “substantially” increase procurement of U.S. military and defense equipment. While defense is a national competence, recent EU joint initiatives such as the SAFE fund prioritize the procurement of European-made equipment. However, in practice, many Member States continue to favor U.S. suppliers, particularly in areas where European alternatives are less competitive.
- Green Deal: The EU would have to re-assess how sustainability-related regulations apply to U.S. products and businesses. In fact, these commitments align with the Commission’s regulatory simplification agenda, already underway with the agreement to ‘stop the clock’ and push back corporate reporting and due diligence rules. The Commission could now propose postponing the application of deforestation rules by an additional year.
Both sides have also committed to further discussions aimed at eliminating non-tariff barriers, including standards and digital trade restrictions — though these appear to target EU regulations more than U.S. ones. Additionally, the Joint Statement includes language on enhanced cooperation regarding third countries, implicitly targeting, without explicitly naming, China.
1.2. EU-U.S. Relationship: What to Expect Next
The EU-U.S. trade relationship remains fragile for several reasons: the unpredictability of the U.S. administration, the absence of a binding legal framework, and the asymmetry in concessions. These elements leave the agreement vulnerable to reinterpretation and political shifts and reversals.
Looking ahead, non-tariff barriers are becoming flashpoints, particularly those related to the EU’s digital regulation framework, which the U.S. administration views as disproportionately affecting U.S. firms. Additional tensions may arise around EU business investments in the U.S., as President Trump seeks visible gains in domestic manufacturing and job creation.
A critical question is what happens if either side perceives the Joint Statement as having been violated. Should the U.S. reimpose tariffs or fail to uphold its commitments, the EU would have a hard choice to make and could reactivate the rebalancing measures that were suspended on August 7th. Beyond this, the EU has other tools in its arsenal such as targeted trade defense measures (e.g. anti-dumping, countervailing duties) as well as the possibility of broader enforcement actions under its International Procurement Instrument or Anti-Coercion Regulation.
However, the EU’s ability to respond assertively is constrained by security imperatives. The strategic importance of maintaining U.S. engagement in Ukraine is likely to continue shaping EU’s decisions.
2. Beyond the EU-U.S. Axis: The EU’s Quest to Protect Itself
The EU needs to consider two dimensions as it navigates its uncertain relationship with the U.S.
2.1. Navigating the China-U.S. Squeeze
The EU must carefully navigate the growing pressure to align more closely with U.S. policy on China, while safeguarding its own economic and strategic interests — interests that are defined differently across Member States.
In the short term, the EU’s priority is to shield the Single Market from a potential influx of Chinese exports redirected from the U.S. market due to U.S. trade restrictions. An import-surveillance task force established by the European Commission in April 2025 is set to monitor trade diversion and sudden import surges. Its findings should inform bilateral discussions and potential retaliatory or protective measures.
The EU has also tested taking firm steps against Chinese players. In June 2025, the Commission enforced the 2022 International Procurement Instrument for the first time, adopting an implementing act to restrict the participation of Chinese controlled entities in the public procurement market for medical devices exceeding €5 million for a five-year period. However, this move prompted a reciprocal measure from China, effective since July, raising questions about the EU’s room for maneuver in an increasingly retaliatory trade environment.
2.2. The EU’s Approach to Diversifying Trade Partners
The instability of the transatlantic relationship has triggered a renewed momentum in EU trade diplomacy, reflecting an urgency to reduce strategic vulnerabilities. The European Commission has intensified efforts to expand the EU’s global outreach through both traditional free trade agreements (FTAs) and new-generation partnerships, including digital trade agreements.
a) Free Trade Agreements (FTA) under discussion
The European Commission has advanced or resumed talks with key partners across Latin America and Asia, and initiated discussions with the United Arab Emirates to finalize several strategic free trade agreements:
- Mercosur (Argentina, Brazil, Paraguay and Uruguay; Bolivia pending ratification): After more than 25 years of negotiations, the EU and Mercosur countries reached a political agreement in December 2024. On September 3rd, 2025, the Commission presented its proposal for a legal text to the Council, introducing proposals for safeguards amid agricultural concerns brought forward by several Member States, namely France, Poland and Austria. Its adoption, which requires EU co-legislators’ approval, and potentially ratification at Member States’ level, is still uncertain.
- Mexico: On the same day, the Commission presented the proposal for the EU-Mexico Modernized Global Agreement, aiming to update and expand the scope of the existing FTA. The new agreement is expected to notably eliminate tariffs on agricultural and food products and facilitate access to public procurement.
- India: After 14 rounds of negotiations, the last in October 2025, both sides are aiming to finalize an agreement by the end of 2025. Key sticking points regarding tariff cuts on certain goods and the EU’s sustainability and due diligence regulations have yet to be overcome.
- Indonesia: The EU and Indonesia finalized negotiations on a Comprehensive Economic Partnership Agreement and an Investment Protection Agreement in September 2025. The European Commission will now have to put forward its proposal before the Council, then Parliament, with a view to achieving ratification by 2027.
- Thailand: The latest round of negotiations on a Customs and Trade Facilitation and Sustainable Food Systems took place in June 2025, with both sides aiming to reach a deal by December.
- Philippines: After a long pause, the two sides resumed discussions on an FTA in March 2024. The calendar remains uncertain.
- United Arab Emirates (UAE): The EU and UEA launched FTA negotiations in April 2025, with the first round held in June. Talks are expected to cover tariffs on goods (energy products, critical raw materials), services, digital trade and investment flows.
b) Digital trade agreements
As part of its evolving trade strategy, the EU is increasingly pursuing digital trade agreements (DTAs) to complement traditional FTAs. These agreements aim to facilitate cross-border data flows, promote trustworthy digital standards, and ensure compatibility with EU privacy and cybersecurity rules.
They include a DTA agreed upon with South Korea in March 2025 and with Singapore in May 2025, both pending ratification.
Additionally, negotiations began for a Canada–EU DTA complementing the Comprehensive Economic and Trade Agreement. This complementary agreement is expected to address regulatory alignment regarding consumer protection, AI standards and development and interoperability, among others.
(1) A status conferred by a clause in which a country promises that it will treat another country as well as it treats any other country that receives preferential treatment.
For further information or to discuss implications for your organization, feel free to reach out to:
- Anca Caruntu, Senior Public Affairs Director – anca.caruntu@cabinet-samman.com
- Mayeul Bonsens, Junior Consultant – mayeul.bonsens@cabinet-samman.com
