Trump deciding on terms on the basis of respecting bargaining capacity
By T N Ashok
NEW YORK: For years, transatlantic economic ties have been both a bedrock of Western prosperity and a source of simmering disputes. The newly announced US–EU Framework Agreement on trade, unveiled in August 2025 after months of behind-the-scenes negotiations and public tariff threats, marks a critical shift in how Washington manages its global trade portfolio.
While framed as a “first step,” the agreement carries weight far beyond tariff schedules: it signals where U.S. trade policy is heading, how Washington intends to leverage its market power, and whether America is building a new system of transactional deals to fill federal coffers—or inadvertently creating economic stress for its producers and consumers alike.
The Trump administration’s approach to trade with Europe has been anything but smooth. From 2018 onwards, the U.S. accused the EU of unfair subsidies, protectionist agricultural policies, and inadequate reciprocity on market access. Tariff battles escalated particularly around automobiles, steel, aluminium and agriculture.
By mid-2025, the U.S. had imposed a 27.5% tariff on European automobiles, while Brussels retaliated with targeted duties on American agricultural goods, bourbon, and aircraft components. Washington argued that the EU’s **combined trade surplus with the U.S.—over $200 billion annually—**was “too daunting” to ignore, particularly as U.S. exporters complained about restrictive standards and subsidies that shielded European farmers and manufacturers.
The Framework Agreement that emerged this August was less about free trade in the classical sense than about recalibrating leverage. Washington agreed to maintain steep automobile tariffs for now but secured new openings for U.S. exports—particularly seafood, tree nuts, dairy, soybean oil, pork, and defense equipment. Brussels, facing the risk of prolonged tariff escalation, gave way, though it stopped short of concessions on politically sensitive sectors like cars and luxury goods.
Chemicals dominate both import flows, while petroleum represents a much larger share of EU imports from the US than US imports from the bloc.
From the American perspective, EU trade policy has long appeared hypocritical: Europe preaches free markets while enforcing protectionist agricultural quotas, rigorous certification standards, and heavy subsidies through the Common Agricultural Policy (CAP). U.S. officials frequently argued that a European cheese or wine producer could access the American market with minimal barriers, while an American dairy farmer or pork producer faced endless regulatory hoops in Europe.
The U.S. also noted that while American defense procurement is frequently open to European suppliers, European states often favour domestic firms or limit U.S. bids. This asymmetry, Washington argued, amounted to a structural disadvantage. Hence, the deal was cast in Washington not as a magnanimous gesture but as a long-overdue correction: the United States “getting its due” after decades of imbalance.
The EU agreement cannot be understood in isolation. It is the latest node in a web of Trump-era trade diplomacy that emphasizes bilateral leverage and tariff threats as bargaining chips.
The U.S.–Mexico–Canada Agreement (USMCA), signed in 2020, was a landmark early achievement of Trump’s first term. It rebalanced auto manufacturing rules of origin, gave U.S. dairy farmers greater access to Canadian markets, and introduced digital trade provisions. Crucially, it showcased the strategy: threaten tariffs (in this case on Canadian steel and Mexican cars), extract concessions, and then repackage the outcome as a modernization of trade rules.
Trump’s OBBB is framed to augment domestic semiconductor production and enhance trade protection, even at the expense of certain social programs such as Medicaid, food stamps, and student loans, as well as a projected ballooning federal deficit from US$2.8 to 3.3 trillion
The U.S.–China economic relationship has been the most contentious. Trump’s tariff wars in 2018–2019 set the stage for the Phase One Agreement, which committed China to purchase billions in U.S. goods. While implementation was uneven, the tariffs remained, giving Washington leverage. By 2025, the relationship is characterized by managed trade rather than liberalization: the U.S. extracts quotas and purchase commitments rather than pursuing comprehensive market opening.
As regards US-UK trade deal, President Donald J. Trump and Prime Minister Keir Starmer announced a historic trade deal, providing American companies unprecedented access to the UK market while bolstering U.S. national security. This agreement in principle provides significant expansion in U.S. market access in the UK, creating a $5 billion opportunity for new exports U.S. stakeholders, including U.S. farmers, ranchers, and producers.
This includes more than $700 million in ethanol exports and $250 million in other agricultural products, like beef. It commits the countries to work together to enhance industrial and agricultural market access. It will ensure streamlined customs procedures for U.S. exports. It commits the countries to work to develop high-standard commitments in the areas of intellectual property, labour, and environment. It commits the countries to negotiate an ambitious set of digital trade provisions. It maximizes the competitiveness and secures the supply chain of U.S. aerospace manufacturers through preferential access to high-quality UK aerospace components. It provides a secure supply chain for pharmaceutical products.
This U.S.-UK trade deal will usher in a golden age of new opportunity for U.S. exporters and level the playing field for American producers, claimed US sources.
Post-Brexit Britain offered another opening. The U.S.–UK trade deal focused on agriculture, pharmaceuticals, and defense contracts, giving Washington another avenue to showcase bilateral wins. London, in need of diversification after leaving the EU, was a willing partner.
In Southeast Asia, Washington has moved selectively, focusing on Vietnam, Singapore, and the Philippines. The logic is twofold: diversify supply chains away from China while building security partnerships. India remains the most tantalizing but elusive partner. Negotiations have dragged on, with disputes over agricultural subsidies, digital trade, and pharmaceuticals. Yet, India’s market size makes it a priority for future deals.
Seen alongside these other deals, the US–EU Framework Agreement reflects the same philosophy of transactional balancing. The United States is not aiming to create a grand multilateral trade regime, as in the post-war era. Instead, it is building a patchwork of bilateral and mini-multilateral deals designed to: Leverage America’s market size to secure openings for politically sensitive industries (agriculture, energy, defense).Extract fiscal benefits by maintaining selective tariffs that funnel revenue to U.S. coffers. Avoid large troop commitments abroad by tying allies closer through trade and procurement deals—an echo of Trump’s broader foreign policy.
Tariffs are, by definition, a tax on imports. With a 15% duty on most EU goods and a 27.5% tariff on European cars, the U.S. Treasury stands to collect billions annually. In an era of persistent deficits, this revenue is politically attractive. Moreover, U.S. farmers and defense contractors gain access to new markets, potentially offsetting pain in other sectors.
However, the story is more complex. American manufacturers reliant on European pharmaceuticals, semiconductors, and machinery face higher input costs. If they pass these costs to consumers, demand could shrink. If they absorb them, profit margins erode. Sectors like aerospace, chemicals, and automotive supply chains risk disruption, as many depend on transatlantic integration.
The consumer angle cannot be overlooked. If tariffs on pharmaceuticals or electronics raise prices, households will feel it quickly. In an inflation-sensitive environment, this could fuel political backlash. While luxury goods tariffs may not bite middle-class consumers, medical costs and electronics certainly will.
The cumulative pattern of U.S. trade policy under Trump suggests a shift from liberalization to managed reciprocity. The old bipartisan consensus—that lowering tariffs boosts overall welfare—has been replaced with a doctrine where tariffs are tools of coercion and fiscal capture.
This doctrine has three main pillars: Transactional Reciprocity: Every partner must “pay” for access, either through purchases or concessions. Revenue Generation: Tariffs are not just bargaining chips but a way to fund the government. Strategic Realignment: Trade deals are tied explicitly to security partnerships, from NATO burden-sharing to Indo-Pacific balancing.
The U.S.–EU Framework Agreement is not a final settlement. It is an opening gambit. Washington has left automobile tariffs in place precisely to preserve leverage for future rounds. Brussels, for its part, is betting that compliance now will prevent escalation. Yet, European leaders remain wary: if the U.S. can weaponize tariffs so quickly, what guarantees exist that new barriers won’t appear down the road?
Looking ahead, the U.S. faces a delicate balancing act: If revenues from tariffs flow steadily and farmers see export gains, the strategy could consolidate into a long-term doctrine. If producers buckle under high input costs and consumers resist higher prices, political blowback may force a recalibration. Either way, the era of automatic free trade liberalization is over. The U.S. is now pursuing “Fortress Reciprocity”—a system where partners must continually prove their value to maintain access.
The US–EU Framework Agreement represents more than a truce in tariff wars. It reflects a fundamental reorientation of U.S. trade policy away from multilateral liberalization and toward transactional bargaining. By comparing it with deals in North America, China, the UK, and Asia, the outlines of a doctrine emerge: the United States will use its market as both carrot and stick, collecting billions in tariff revenue while forcing trading partners into asymmetric concessions.
The gamble is whether this fills federal coffers without breaking domestic producers or alienating consumers. For now, Washington is betting that Europe—and the rest of the world—has too much to lose in a trade war with the United States. But as tariffs bite into supply chains and household budgets, the test of this model’s sustainability has only just begun. (IPA Service)
