The surrender in Turnberry

11 thoughts on the EU-US trade deal

The 2025 EU-US trade agreement, implemented by an executive order signed by President Trump on July 31, is a lesson in what happens when posturing meets hard power. But despite the outraged reaction from many European politicians, this failure was not Von der Leyen’s fault. It was the inevitable outcome of structural problems that follow choices made by the member states themselves.

Here are some takeaways from the Turnberry accord.

1. Turnberry is not a deal, but a surrender. We accepted 15% tariffs on our key exports, promised $750 billion in US energy purchases, and $600 billion in American investments, and drastically reduced our own auto tariffs—all while getting literally nothing in return. When you hear boasting about the deal by a EU Commissioner, translate it as “be happy it is not worse.”

2. Contrary to the Commission’s assertion, this deal does not even buy “certainty in uncertain times”. The fine print of the deal is vague for a reason. Pharmaceutical and semiconductor tariffs remain unresolved with “all options on the table.” Investment terms lack specifics. Energy purchase mechanisms are not defined. The strategic ambiguity is designed to keep Europe constantly off-balance and negotiating from weakness, never knowing when the next demand will arrive. Knowing Trump, higher demands are sure to arrive.

3. Almost certainly, neither this deal nor the one with the UK was GATT/WTO-compliant. They violate the WTO’s Most Favored Nation (MFN) rule, which requires countries to offer the same trade terms—like tariffs—to all WTO members, not just select partners. Turnberry marks the death, for the EU, of the rules-based trading system on which our prosperity was built. Remarkably, Trump managed to destroy the global trading system and raise tariffs by more than the infamous 1930s Smoot-Hawley Act without starting a trade war.

4. Credible threats win negotiations. Trump’s unhinged behaviour paradoxically made his threats credible. Beyond that, the threat to impose 30–50% tariffs was believable because it was plausible that the economic and especially political damage would have hurt us far more than them. Europe’s export-dependent economies are already stagnant.

5. If the other side cannot hit back, economic theory shows that a big buyer like the US can gain by taxing imports. Put a 15 % levy on a €60,000 German car. To stay in the market the exporter reduces the factory-gate price to €55,000. Customs collects 15 % of that (€8,250) and the American buyer now pays €63,250—€3,250 more than before. The Treasury pockets the full €8,250, so the net gains to the US are €5,000 per car. Home producers also profit from the higher prices. This strategy works as long as the US has market power and the other side can't retaliate effectively—which Europe, due to its internal divisions, will not. Nor will the UK, Japan or Canada.¹

But caveats do apply to this basic argument, and they mean most likely the US economy will not benefit from the Trump tariffs:

• These high, broad-based tariffs raise input costs to manufacturers and make them less competitive.

• Also, the US is no longer a manufacturing economy—as Richard Baldwin has remarked, 90% of its people work in services.

• Most importantly the growing regulatory complexity and arbitrariness of the tariff regime provides rents to those connected with power, not to innovators. It is a recipe for the biggest enemy of growth: regulatory overkill and crony capitalism. Consider the example of importing a can of beer from Belgium into the US. There is a 10% country-specific tariff on the entire value of the product. On top of this, the aluminium can itself is treated as a completely separate product, subject to its own additional tariff of up to 50%. The level of this tariff is based on the nearly untraceable origin of the raw metal—the country where the aluminium it was "smelted and cast." The tariff rises to 200% if the country is unknown. This forces an importer to research the obscure global supply chain of a minor component and apply multiple, overlapping tax rates to a single, everyday item.

6. You cannot win a trade war against the army that protects you. Our weakness is Russia. With a threatening Russia on our doorstep, and the Ukraine war ongoing, Europe cannot afford any break with the US. This makes us vulnerable to coercion. This dependency was the key truth in the room at Turnberry. Faced with the choice, Europe has to accept whatever terms Trump offers.

7. The EU's central budget of around €160 billion equals just 1% of its GDP, making it 36 times smaller than the US's federal budget. Just the US defense budget is four times the budget of the EU. When Trump threatens tariffs, Brussels cannot compensate affected industries without asking member states for money. There is no fiscal capacity to respond to coercion. The Commission's latest budget proposal maintains this structure through 2034.

8. Technology dependence creates huge leverage for the US. The talk about service retaliation was not credible. Europe runs on American cloud infrastructure, AI platforms, and software, creating a €300 billion annual deficit in digital services. We now face 15% tariffs on semiconductors we import, while our premier technology company, ASML, must provide its essential lithography equipment tariff-free to American manufacturers. We are paying more for the finished product while giving away the tools to make it.

9. Fixing the European single market would render the damage from any loss of American trade moot. The IMF estimates that internal EU trade barriers are equivalent to a 45% tariff on goods and a staggering 110% tariff on services. Today, the supposed 440-million-consumer market is actually 27 fragmented fiefdoms. The lack of a banking and capital markets union is a key flaw. The proposed “28th regime” would create voluntary EU-wide corporate law. Completing the banking union would enable continent-scale financial institutions. Real capital markets would channel Europe's massive private savings productively.

While von der Leyen proclaimed a “geopolitical Commission,” enforcement of single market rules — the Commission's core treaty obligation —collapsed. During her tenure, enforcement actions fell by 80%. Only 173 new infringement cases were opened last year, compared to over 700 a decade ago. The Commission busied itself expanding into housing, defense, and climate policy while abandoning its primary duty: ensuring goods and services flow freely across borders. It must now focus on its core business.

10. The actual deal is still not Von der Leyen’s fault. The French PM cried “soumission” on seeing the deal. But France (and the other member states) are responsible for the state of affairs. They continue to drag out, sabotage and fail to ratify Mercosur, blocking the best free trade alternative available. France (together with other member states) is responsible for slowing the single market of services and the capital market union at every turn in the name of national interest.

11. Europe needs to find ways to reduce Trump’s leverage despite its fiscal constraints. One option is improving the single market, which costs nothing and is good for growth. The other is defence integration. The proposed European Defence Mechanism, which would pool procurement and create a defence single market through an intergovernmental treaty, avoiding the EU's unanimity requirements, is such an option.

1. Note that the illustration keeps quantities fixed to keep the arithmetic simple. In real life the higher price chokes off some demand and lures in more home-grown supply, so fewer German cars are sold and some buyers walk away without a car. Those missed trades are a deadweight loss caused by the tariff.