Trade negotiations between the US and the EU are entering a crucial stage. In the absence of a tentative agreement by 9 July, the EU would be hit by a “reciprocal tariff” of 50%. Moreover, the sectoral tariffs on steel, aluminium, auto and auto parts would remain in place, while others could be added to them in sectors currently under investigation by the US side (pharmaceuticals, semiconductors, etc.). In this column, we discuss what could be the best course of action for the EU in a broad perspective. In particular, we will look at what the EU should do and not do from now on while negotiating with the US. These “dos and don’ts” should be part of a comprehensive strategy, the aim of which is not only to reach an agreement that lowers tariff rates, but also to rebuild multilateralism bottom-up and to revamp the EU’s business model.
Trump’s tariffs are based on wrong premises (Lawrence 2018), bad economics (Obstfeld 2025), or both (Buti and Messori 2025). Ultimately, what prevails is Richard Baldwin (2025)’s “Grievance Doctrine” i.e., a doctrine “based on a myth of betrayal, humiliation and wreckage… Trump’s April 2nd tariffs aimed to stop the steal by rebalancing trade, to end the humiliation by reindustrializing America, to protect the struggling middle class, and to extract retribution on the thieving foreigners.” Therefore, as the premises are wrong, the economics is bad, and the myth underlying Trump’s trade policies is a false one, there should not be any illusion: even in the best-case scenario, the final outcome will be bad for everybody. Negotiations are carried out to limit the damage and avoid worse outcomes.
So far, Trump’s trade strategy has led only to a preliminary agreement between the US and the UK (the ‘Economic Prosperity Deal’, or EPD), while the US and China have de-escalated recent bilateral trade tensions through a 90-day temporary agreement. There are however indications that some countries (e.g., Japan, South Korea, India, Vietnam) could reach preliminary agreements with the US ahead of the 9 July deadline.
The UK and Chinese deals are the outcomes of different negotiating strategies: cooperative in the case of the UK, and confrontational in the case of China. Both have delivered some success (a de facto significant lowering of the sectoral tariffs for the UK, a better than expected reduction of overall tariffs for China) and significant losses (the UK had to accept a 10% baseline tariff despite the fact it has almost no trade surplus with the US, while China has seen a significant increase in the level of US tariffs).
Table 1 Trump II additional tariffs: State of play
Notes: These tariffs are cumulative and add up to those already in place at the end of 2024. For instance, the US last year had already in place a 2.5% tariff on cars. Moreover, many Chinese goods were already submitted to quite high US tariffs. (*): 90 days pause starting on 14/05/2025 (**): 90 days pause starting on 09/04/2025 (***) The baseline tariff must be added to the reciprocal tariff. (#): On May 28, the US Court of International Trade ruled that Trump’s global tariffs were illegal and gave the Trump Administration 10 days to “effectuate” its order. However, on May 29, the US Court of Appeals for the Federal Circuit temporarily paused the CIT ruling “until further notice”. On June 10, the same court ruled that Trump’s tariffs can remain in effect while appeals proceed. (+): This preferential treatment remains in effect through July 9, 2025, after which tariffs may rise to 50% if compliance conditions set out in the EPD are not met (++): 25%/50% sectoral tariff + 20% fentanyl-related tariff
Source: Authors’ elaboration.
What is still unclear at this stage is whether the EU and the US can also get to a preliminary agreement before 9 July, as negotiations between the two sides started in earnest only at the end of May. Despite the fact that both sides claim that progress is made, the landing zone of a possible deal remains ill-defined.
Looking forward, the EU should change tack in the ongoing negotiations, as the two sides move towards the endgame. To do so, it should consider setting its course of action through three “don’ts” and three “dos” that could help shape a comprehensive EU international economic strategy.
Three “don’ts”
The first “don’t” is to build and negotiate on the basis of an optimistic central scenario. As we have argued above, in any case the final deal will be bad. An optimistic central scenario only risks creating expectations that will most likely be disappointed. It is better to have a realistic/pessimist central scenario and try to extract as much as possible from the US side to improve it. This will limit the political disappointment in the event of an unsatisfactory agreement, a disappointment that would reflect negatively on the European Commission’s negotiating skills. It will also allow Commission’s negotiators to address more effectively the uncertainty that will surround any deal that will be reached as well as its aftermath.
The second “don’t” is to make concessions on substance based on promises of concessions on process. In part this may be taking place if it is confirmed that the EU is ready to accept the baseline tariff in exchange of the postponement of the 50% reciprocal tariff from 1 June to 9 July. We will know only at the end of the negotiations if this was the case. If it was, this would provide an even stronger reason not to do it again. Until now, the EU has already shown exceptional restraint vis-à-vis Trump’s escalation (see the first “do” below), but this has not improved its negotiating position. From now on, it can make concessions only if they are paired by concessions from the US side (Bertoldi and Buti 2025b). Moreover, the EU side must ring fence the negotiating field: as the US has consistently rejected the possibility of discussing trade in services (where it has a large surplus), services should not be in the remit of current negotiations.
The third “don’t” is to take the progress made in the negotiations as something set in stone. In the end, it will be President Trump who will have the last word on whether the deal will go through or not. Given his strong hostility and grievances towards the EU, the European Commission should be prepared and have contingency plans in place to handle last minute requests he may put forward. In addition, the deal should not be considered as final. Any agreement reached before 9 July deadline will be at most preliminary and a lot of details will still have to be worked out (for instance, the UK government thought to have lowered the US steel and aluminium tariffs to zero, but on 3 June they were raised to 25% and may well increase further to 50% on 9 July if compliance conditions set out in the EPD are not met). As Trump’s preferences are unstable, it is possible and even probable that any preliminary deal will be reopened, and negotiations will drag on for a long time. Therefore, if a deal is reached, it would be a mistake for EU policy makers to take a victory lap, claiming that it will open a new period of transatlantic economic cooperation. It will not.
Three “dos”
Having established what not to do, we now identify three “dos” that should be the cornerstones of a comprehensive EU strategy.
Faced with unclear preferences on the part of US authorities, the first “do” is making explicit the EU reaction function. So far, the EU has shown quite remarkable goodwill vis-à-vis the US: until now the US has imposed new tariffs on $380 billion of EU exports against zero new tariffs from the EU side. Europeans are clearly worried about possible spillovers of a trade conflict with the US on security and defence issues, as well as on the impact of an escalation of the conflict on the weak European economic situation. Therefore, the EU negotiating tactic has been much closer to that adopted by the UK than the Chinese one. However, differently from the UK, the EU has kept open the possibility of strong retaliatory measures if an agreement cannot be reached. Hence, the EU can still opt for a more robust negotiating strategy, which allows “to escalate to de-escalate” (Bertoldi and Buti 2025b). Still, as time goes by, the credibility of the EU retaliatory threat weakens as the US continues to raise the stakes (last in time, the US increase of tariffs on steel and aluminium from 25% to 50%) without triggering a European response. This ‘good faith’ attitude risks being misunderstood for weakness. To avoid it, the EU should rapidly finalise the content of €95 billion package to be applied on 10 July if negotiations fail. It should also start the process for triggering the Anti Coercion Instrument (ACI) by designing its content. Triggering formally the ACI on 10 July in case of negotiation failure would start a long process of investigation, consultation, negotiations that will take several months. Showing however the willingness to proceed along the way would be a clear show of unity and determination.
The second “do” is redoubling the efforts to rebuild multilateralism bottom up. The Commission has signed a free trade agreement with Mercosur, in spite of the objections of some Member States. The Council should now ratify it as a matter of urgency. The Commission has also accelerated the negotiations with other countries (India, Mexico, Switzerland, amongst others) and consider forming an alliance with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (Garcia Bercero 2025). To enhance the feasibility and the effectiveness of such efforts, the Commission could mirror the organisation of the US administration, which has a Trade Representative and a Secretary of Commerce. Therefore, the Commission could consider appointing an Executive Vice President in charge of negotiations with third countries to work side by side with the Trade Commissioner. To take the mantle of multilateralism, the Commission could also take the initiative to organise an international conference of the willing from the Westen world and the Global South.
The third “do” is getting serious in reforming the EU economic and security model. The EU has started to implement the Draghi-Letta agenda, but it has shied away from tackling the most difficult issues, namely those involving common funding (e.g. Blanchard and Ubide 2025). However, Leaders should understand that even the best crafted and most effective response to the Trump challenge would fall flat if the EU does not reform its economic and security model to enhance its strategic autonomy. Hesitations on the creation of a common defence, the strengthening of the EU budget, the operationalisation of the Saving and Investment Union, the launch of a safe asset, the completion of Banking Union would not only weaken the EU domestically but affect its place in the world. Most of these issues will not be feasible in the short term by proceeding with all Member States. Given the diversity of preferences within the EU, it would even be counterproductive to try to keep all EU countries on board: it would not only delay the process, but would make the delivery prey of the risk of ‘entrism’ of governments who intend to boycott from the inside.
In sum
The described approach would show that the EU can achieve strategic autonomy and exert a leadership role in rebuilding multilateralism bottom up.
The political and institutional bar to implement such comprehensive approach is high. To adopt such a negotiating strategy, the EU must overcome the ‘fear factor’ in the fields of security and defence. It is true that Trump could threaten to abandon NATO and stop the support to Ukraine. However, can Trump really afford to lose the most important US ally? Most likely he cannot, and the EU should take the calculated risk that in the end he would not. And if it would, nothing would prevent him proceeding even if the EU keeps a lenient attitude in its trade negotiations.
The drawback of standing ground is that it may well lead to short-term tariff escalation, as it happened already with China when it responded to Trump’s “Liberation Day”. This would create significant upheaval in transatlantic economies and financial markets. However, this very upheaval could also push the Trump administration to return to the negotiating table. Despite the recent recovery of the stock market, nervousness is still gripping financial markets (Benigno 2025). Moreover, the US bond market remains shacky and unstable, and a growing number of investors is looking for alternatives to the dollar: as a result, US Treasury bond rates and exchange rates are very close to where they were on 9 April, when raising interest rates coupled with a weakening dollar led Trump to partially reverse its tariff blitzkrieg against the world. Trump’s leverage is much weaker that a couple months ago: he dissipated the strong economy legacy he received from Biden by creating enormous uncertainty, while the “Big Beautiful Bill”, with its large unfunded tax cuts, has further unsettled the US bond market.
If the EU can resist US pressure and reaches a better than anticipated deal, this will enhance its standing and discourage US interference in other areas of EU competence. Such an outcome will strengthen the confidence in the EU and its institutions and facilitate the efforts to reconcile its domestic and external agendas (Bertoldi and Buti 2025a). Moreover, should the confrontation temporarily escalate, this could provide the momentum to overcome short-sighed obstacles and adopt bold decisions to support the EU economy to face unjustified US aggressiveness.
References
Baldwin, R (2025), The Great Trade Hack: How Trump’s Trade War Fails and the World Moves on, CEPR Press.
Benigno, G. (2025), “Why the tariffs caused turmoil in financial markets”, VoxEU.org, 15 April.
Bertoldi, M and M Buti (2025a), “America under Trump: domestic and European implications”, VoxEU.org, 13 January.
Bertoldi, M and M Buti (2025b), “US-EU Trade Negotiations: Peering Through the Fog”, ISPI Commentary, Istituto per gli Studi di Politica Internazionale, 29 May.
Blanchard, O and A Ubide (2025), “Now is the time for Eurobonds: A specific proposal”, Realtime Economics, Peterson Institute for International Economics, 30 May.
Buti, M and M Messori (2025), “International Trade and Human Stupidity”, Institute for European Policymaking, Università Bocconi.
Garcia Bercero, I (2025), “Trump’s tariffs need a strategic response from the EU and others”, Bruegel First Glance, 15 April.
Lawrence, R (2018), “Five Reasons Why the Focus on Trade Deficits Is Misleading”, Policy Brief 18-6, Peterson Institute for International Economics, March.
Obstfeld, M (2025), “Trump's tariffs are designed for maximum damage—to America”, Realtime Economics, Peterson Institute for International Economics, 4 April.
