August 08, 2025
Tariff drama continues
The "deal" between the EU and the US has built-in breaking points.
To the point!
Much has already been said about the so-called trade “deal” between U.S. and Europe. Since the day President Donald Trump and European Commission President Ursula von der Leyen shook hands on Trump’s loss-making golf course in Scotland, the agreement has prompted widespread criticism. Skeptics argue that the European side has all but surrendered to the schoolyard bully in the White House. Such actions, they contend, amount to nothing less than a humiliation unworthy of Europe.
Yes, it could have been (even) worse
The European Commission and many politicians counter that, while the “deal” with its 15% tariffs on nearly everything will hurt Europe economically, the alternative – further escalation – would have been far worse. There is some truth to this. Trump's threat to match all EU-imposed counter-tariffs on American duties one-to-one on top of the 15 % is certainly to be taken seriously. In such a scenario, Europe’s economic outlook would darken con-siderably. Economists largely agree that imposing tariffs ultimately harms the country doing so. Just because a trading partner has thrown rocks into its harbor doesn’t mean you should do the same. And Washington has tossed plenty into its own harbor. LBBW Research has been skeptical all along about the prospects of an amicable resolution with the U.S., which is why we left our 2025 growth forecast for Germany at 0%.
The agreement comes at the EU’s expense.
The fine print of the EU “deal” is mostly window dressing
But the issue goes far beyond tariffs. To prevent another Trumpian tantrum, Europe agreed to a slate of concessions. These commitments include arms purchases, direct investments, and the procurement of American energy, especially liquefied natural gas (LNG). And there, I believe, is the rub.
Europe has promised to purchase $750 billion worth of LNG, oil, and nuclear fuel from the U.S. over the next three years. This is entirely unrealistic when you consider that, in 2024, the EU imported only €376 billion worth of energy in total – and that number is trending downward. Less than €70 billion of that came from the U.S. Under the deal, annual U.S. energy exports to Europe would suddenly almost quadruple, accounting for nearly two-thirds of the EUs energy imports. To achieve this, European im-porters would need to terminate existing supply contracts with countries like Norway or Qatar. The agreed import volume is divorced from both demand and reality. And when Trump realizes this, you can bet he’ll angrily slam his fist on the table.
A similar issue arises with European direct investments in the U.S. The EU has pledged an investment volume of $600 billion. But such investments do not come from the European Commission – they come from companies. And those companies cur-rently seem far from eager to invest in the U.S. In the three months following Trump’s election, German firms alone pulled €389 million more out of the U.S. than they invested there. For comparison, in the first three months of a U.S. presidency since the turn of the millennium, German companies have typically invested an average of €10 billion net in the U.S. Right now, European firms are voting with their wallets: They are steering clear of an unpredictable U.S. economic climate. If von der Leyen’s promises of investment fail to materialize – and I find that highly likely – it will incense the petulant occupant of the White House.
Promised energy imports from the US are as unrealistic…as are the agreed investments.
Slipping on thin ice instead of providing stability
You may be wondering why I keep placing “deal” in quotation marks. The answer lies in my deep skepticism that the handshake in Scotland has truly established a lasting framework. Almost immediately after the tête-à-tête in the golf club house, the interpretations of the assumed agreement diverged dramatically. And if Trump feels deceived, rightly or wrongly, he won’t hesitate to tear everything up again and impose new trade rules.
By now, tariff policy has become about far more than trade. In cases like Brazil or India, the White House openly pursues political goals. Should Europe overstep with its criticisms or fail to meet the kind of exaggerated expectations outlined above, it’s only a matter of time before today’s trade agreement becomes just the prelude to tomorrow’s trade dispute. And I’m not alone in seeing things this way.
Switzerland, from where I write this column can sing a song – or yodel – about it. Switzerland had weeks before the August 1 deadline hashed out a “deal” with U.S. Trade Representative Jamieson Greer and Treasury Secretary Scott Bessent. But, in the current U.S. administration, there’s only one person who makes the final call. And he moved in mysterious ways. The result? A 39% tariff, based on an accusation that Switzerland “stole” from America! Expect the unexpected from Trumpian trade policy.
Dr. Moritz Kraemer, Dr. Moritz Kraemer, Chief Economist / Head of Research at LBBW
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