Trump–EU trade deal raises doubts over EU-Mercosur agreement

The preliminary agreement between the United States and the European Union (EU), announced on Sunday by Donald Trump and Ursula von der Leyen, creates a new geopolitical and economic context that could influence the implementation and outcomes of the EU-Mercosur agreement, according to select analysts.

The lack of detail so far regarding the deal between Washington and Brussels, as well as the need for approval by the EU’s 27 member states, adds uncertainty to the arrangement—especially given that the terms appear particularly favorable to American interests. The Europeans have made significant concessions in areas such as investment and energy purchases, without clear reciprocity in tariff exemptions for sensitive EU sectors.

Trade wars are harmful to all parties, but the deal with the U.S. appears more like a European “surrender.” The bloc accepted a 15% tariff on European goods entering the U.S. (Trump had threatened to impose 30% without an agreement). In contrast, it won’t impose similar tariffs on many American goods entering the European market.

Olivier Blanchard, former chief economist at the International Monetary Fund (IMF), summed up what many see as Europe’s weakness: “A completely unequal ‘deal.’ When the law of the jungle prevails, the weak have no choice but to accept their fate. But Europe could have been strong—alone or in coalition with others. It would have had to brave turbulent waters. But it would have secured a better deal in the end and sent a strong message to the world.”

Trump celebrated the fact that American products will not face tariffs in the European Union. “We now have access to all European countries, which I would say were essentially closed,” he said. EU Commission President Ursula von der Leyen stated only that the U.S. and EU had agreed to zero tariffs for various strategic products, including certain agricultural goods, aircraft and components, some chemicals, specific generics, semiconductor equipment, certain natural resources, and essential commodities.

What does all this mean for the EU-Mercosur agreement, which was politically finalized last December in Montevideo?

An initial assessment is that the Trump-EU deal increases the economic and political pressure on the EU, which could complicate the ratification of the EU-Mercosur agreement.

The 15% tariff on EU exports to the U.S., combined with Brussels’ multibillion-dollar pledges to invest in and purchase American energy, could divert resources and political attention from Brussels—potentially delaying further the ratification of the deal negotiated with Brazil, Argentina, Paraguay, and Uruguay.

The absence of tariffs on U.S. exports to the EU contrasts with the limited concessions granted to Mercosur. The Europeans maintained trade barriers against Brazil, Argentina, Paraguay, and Uruguay, including quotas for beef and other goods. Now, Mercosur will have to compete against tariff-free American products in the European market.

The U.S.–EU deal indeed poses risks to Mercosur’s competitiveness in sectors like ethanol and beef. Europe’s promise to Trump to purchase US$750 billion in American energy—particularly liquefied natural gas (LNG)—could reduce demand for Mercosur biofuels. The EU-Mercosur deal’s quota of 450,000 tonnes of ethanol at a reduced tariff thus becomes less competitive if Europe prioritizes U.S. LNG, limiting the agricultural export gains Brazil had expected from the agreement.

Moreover, it would come as no surprise if farmers in France, Ireland, and Poland—already fearful of increased competition from U.S. agricultural goods but unable to halt the trade deal—intensify their opposition to what they call cheaper Mercosur products, such as beef and sugar, further delaying the implementation of the bi-regional agreement.

Given the EU’s new energy commitments to the U.S.—already seen as less sustainable (involving gas, oil, and nuclear fuel)—the Brussels-Washington pact may increase pressure on the EU to meet its sustainability targets. That would make it harder to justify the Mercosur deal to the European public and Parliament.

It’s worth recalling that the European Commission had promised to submit the Mercosur agreement to the European Council (composed of EU leaders) by the end of June for deliberation. It has yet to do so.

With Trump’s deal also promising US$600 billion in investments for the U.S., the EU may now have fewer financial resources available for Mercosur—especially for supporting green transition initiatives or infrastructure projects in the Southern Cone.

European companies are likely to prioritize the U.S. market to offset losses—especially the German auto industry—shifting focus away from other regions.

The deal between Washington and Brussels strengthens the transatlantic relationship amid a global wave of protectionism, led by Trump’s “America First” agenda. The result may be that the EU increasingly prioritizes U.S. interests over those of other partners, including Mercosur, which is perceived as less strategic in terms of security and geopolitical influence—despite the EU’s rhetoric about strategic autonomy.

According to one prominent analyst, Mercosur may become even more dependent on China, its main trading partner.

The outlook is particularly difficult for Brazil. The country’s challenges in the global trade arena are not limited to the U.S. under Trump. China, too, is displacing Brazilian exports in key markets. And a deal with the EU—seen as a means to reduce Brazil’s vulnerability—now runs the risk of delivering even fewer benefits.

Source: Valor Econômico

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