In 1842, broken and defeated, China sent its top bureaucrat, Qiying, to Nanjing to meet with Sir Henry Pottinger, the ruthless British colonial administrator who dictated surrender terms to the Chinese. In the resulting Treaty of Nanjing, China gave everything and received nothing but humiliation in return. They called it a trade deal, over which merchants clinked glasses in London while China’s poets lyrically immortalised the shame that still haunts their great land.
Last month, broken and defeated, the European Commission sent its top diplomat, Ursula von der Leyen, to a Trump-owned Scottish golf course to sign a similarly shameful treaty. They called it a trade deal, too, to conceal how Europe gave the US President everything and received nothing but humiliation in return. Remarkably, unlike China in 1842, Europe succumbed not to defeat in battle, but to a mere few months of tariff waterboarding — a torture technique that foolish European leaders, inspired by hapless US Democrats, once dismissed as TACOS (“Trump Always Chickens Out”).
Though Europe’s poets will have nothing lyrical to recite about the humiliation that will cast a shadow for decades upon the continent, its politicians have already confessed to it. A “dark day”, in the words of François Bayrou, the French prime minister. An “admission of weakness”, cried out Michel Barnier, the European Union’s Brexit negotiator, who should know a thing or two about negotiating from a position of supreme arrogance.
The details of the EU-US trade deal are truly embarrassing for Europe. While US goods will be exported to Europe tariff-free, an across-the-board 15% tariff will be slapped on European exports to the United States, with a whopping 50% on steel and aluminium exports. And that’s only the beginning.
Europe committed to cancelling all actual or planned cloud taxes on Big Tech, and then threw in a massive tribute to appease Donald Trump: $600 billion in fresh investments into the US economy, and $750 billion in fracked US oil and gas by the end of 2028. That is, a gargantuan cheque of $1.35 trillion — without including the countless billions in US-sourced weaponry that European governments are on the hook for (if they are to fulfil their Nato defence spending pledge).
By issuing her new promises, von der Leyen has overlooked the key lesson that Europe should have learned from President Trump’s first term: failing to offer Trump large sums of money may be dangerous, but making promises that cannot be delivered is infinitely worse.
Besides the fact that the European Commission cannot compel private companies to send their cash to America, there is another snag: neither the promised money nor the requisite capacity exists. German carmakers and chemical companies are, of course, already investing in the United States to bypass Trump’s tariffs, but nowhere near the promised $600 billion in the next two and a half years. Even worse, the pledge to buy $750 billion worth of US energy ($250 billion annually over three years) is pure fantasy: the EU’s annual energy expenditure falls far short of that, not to mention that US frackers do not have the capacity to sell Europe so much oil and gas even if the Europeans were willing and able to buy it.
Doesn’t Trump know this? He does, of course. Has he forgotten Jean-Claude Juncker’s broken promises? No one remembers these things as well as this US president does. You can see it in his eyes. He is loving it. It’s his golden opportunity to bludgeon a European Union that he has loathed with undiminished passion for so long. In addition to shrinking America’s trade deficit, and pocketing substantial tariff revenues in the process, Trump can’t wait for the EU to breach von der Leyen’s investment and energy pledges. Once it does, after 2028, in his last year in the White House, he will be able to extract more humiliating concessions, citing broken European promises.
Comparing the EU-US trade deal with the UK-US one signed last May, it is indisputable that Trump treated Keir Starmer with kid gloves. This had little to do with economics. Nor was he motivated by Anglophilia or his greater dislike of von der Leyen. Something larger, from his perspective, made him be kinder to Britain, even to the extent of displeasing US car manufacturers who can’t believe that it is now cheaper to import into the US a car from Britain (with no US-made parts) than a Ford or General Motors vehicle manufactured in Mexico or Canada (but with most parts made in the USA).
“It is indisputable that Trump treated Keir Starmer with kid gloves.”
What could his reason be for choosing to take such heat from his own MAGA constituency on behalf of British carmakers, many of which are not actually British-owned? Simple: by setting a blanket tariff of only 10% (including for cars), 5% below the EU equivalent, while also eliminating tariffs on steel and aluminium, he has driven such a deep wedge between London and Brussels that even the staunchest Rejoiner has surely lost the will to fight on by now. Thus Trump rejoices in the thought that he has rendered Brexit, the harbinger of his own first electoral triumph, well and truly irreversible.
Before resigning itself to its own version of the Treaty of Nanjing, the EU leadership went through the same four stages of grief as Britain’s Brexit negotiators: from “We shall retaliate if they dare squeeze us” to “We may retaliate if pushed” to “No deal is better than a bad deal” to “Any deal please, we are desperate”. Now that the recriminations over the 21st-century Treaty of Nanjing are in full swing in Brussels and every European capital, two questions demand answers. What did Europe’s leaders get wrong? And what could they have done differently to avoid this humiliating deal, while preventing even greater economic pain?
For starters, European negotiators committed three unforced errors of judgement. Firstly, they assumed that the EU single market’s size mattered above all else. It doesn’t. If there is one magnitude that matters above all others, it is the size of Europe’s trade surplus vis-à-vis the United States. At more than $240 billion annually, it guarantees that a fully fledged US-EU trade war would injure Europe far more than America.
Secondly, as my colleague Wolfgang Munchau has explained, Europeans overestimated the leverage that the EU’s services deficit vis-à-vis the United States afforded Brussels. While Americans can live comfortably without Hermès scarves, French champagne, Kalamata olives and Porsches, Europeans cannot last an hour without Google, YouTube, Instagram and WhatsApp.
Thirdly, and crucially, they lulled themselves into the illusory belief that America’s goods and money markets would go into a spasm, forcing Trump to chicken out. For too long they clung to the expectation that tariffs would boost US consumer-price inflation and stock-market deflation to politically unacceptable levels. It didn’t happen for reasons that Brussels should have foreseen.
American consumer demand is relatively more responsive (“elastic”, in economic parlance) to price hikes than both European consumer demand and the European exporters’ supply. This is why a German-made Mercedes-Benz was always cheaper in New York than in Stuttgart and why, today, a substantial portion of the tariffs is absorbed by European exporters who pass on to American consumers only a fraction of the tariff, the result being a smaller impact on US consumer-price inflation. As for America’s stock markets, they seem enthralled by their own AI investment craze, the unconscionably large tax cuts Trump gifted them, and the mitigating $300 billion annual tariff revenues that the US Treasury rakes in. Too drunk on this “irrational exuberance”, they refuse to fret over the macroeconomic ill effects of Trump’s tariff game.
But let’s suppose for a moment that the EU’s leading lights had foreseen all this. It is a fundamental principle of negotiations that if you cannot imagine leaving the room without a deal, there is no point in negotiating — you might as well be a supplicant like von der Leyen. So what could the EU have done differently, given that it lacks China’s carefully crafted bargaining weapon of rare minerals and a broad-based array of basic goods that Americans cannot live without? Here is a suggestion.
Europe’s first task would be to plan the replacement of the $240 billion in its domestic aggregate demand due to the potential loss of its trade surplus with the US. For example, the European Council could announce an aggregate productive investment programme of €600 billion annually, to be financed by net issuance of European Investment Bank bonds. The mere hint by the European Central Bank that, if needs be, it will back these EIB bonds, would be enough to keep financing costs ultra-low. All of a sudden, Europe would no longer be reliant on America to maintain aggregate demand.
In addition, the EU should drop all US-inspired tariffs and sanctions on essential Chinese green and digital tech, with a view to striking a deal with Beijing that includes coordinated fiscal expansion measures and mutual security guarantees. It should introduce a cloud tax of 5% on all digital transactions for companies with revenues exceeding €500 million annually (independently of where they are domiciled). What’s more, the EU should repeal the draconian, anti-competitive, US-imposed “anticircumvention” intellectual property laws that make it illegal to use cheaper, generic ink cartridges in your printer; that ban farmers from repairing their John Deere tractors; that stop disabled folk from making even minor adjustments to the steering of their powered wheelchairs. And finally, the EU would be wise to phase out gradually its purchases of US-sourced fracked liquefied natural gas from its energy mix, and US-made weaponry from its militaries.
The fact that such a set of responses would never even be discussed in Brussels gives us a great deal of clarity about Europe. With all the subtlety of a wrecking ball, Donald Trump has exposed how the EU is not even capable of imagining itself a sovereign power, determined as it is to remain but a vassal in an Atlanticist empire. Unlike China in 1842, the European Union has chosen permanent humiliation freely.
