The EU folds on tariffs

Summary

Unhedged Podcast Summary: "The EU Folds on Tariffs"

Podcast Information

• Title: Unhedged
• Hosts: Katie Martin, Robert Armstrong, and other Financial Times market experts
• Collaborators: Pushkin Industries
• Description: Explores the major ideas shaping the finance world, released every Tuesday and Thursday.
• Episode: The EU Folds on Tariffs
• Release Date: July 29, 2025

---

1. Introduction to the Episode

The episode titled "The EU Folds on Tariffs" delves into the recent developments surrounding the US-EU trade deal. Hosted by Rob Armstrong, the discussion features insights from Ben Hall, the Financial Times Europe Editor, providing a comprehensive analysis of the implications and underlying factors of the unprecedented trade agreement between the European Union (EU) and the United States (US).

2. Overview of the US-EU Trade Deal

Rob Armstrong opens the discussion by outlining the controversial US-EU trade deal. He highlights the stark reactions from European leaders, noting that German Chancellor Frederick Mertz predicts significant damage to the European economy, while French Prime Minister criticizes the EU's submissive stance. Carl Falkenberg, a former European trade official, categorizes the deal as evidence of Europe's economic strength but political weakness, summarizing the sentiment as "six thumbs down" (00:36).

3. Reactions from EU Leaders

Ben Hall explains the specifics of the deal, emphasizing that the EU has agreed to impose a 15% tariff on 70% of its exports to the US while exempting US goods from tariffs. He particularly points out that this includes critical sectors such as automobiles and pharmaceuticals, although some details remain uncertain (01:45). Rob Armstrong expresses concern over the one-sided nature of the deal, to which Hall agrees, describing it as "wildly one-sided" and a "defeat for the EU" (02:42).

4. Analysis of the One-Sided Deal

The hosts discuss why the EU accepted such an imbalanced agreement. Ben Hall attributes this concession to Europe's reluctance to engage in escalatory retaliation against the US. He notes that Europe prioritized avoiding a protracted trade war over securing a more favorable deal (03:42).

5. Reasons Behind EU's Concessions

a. Escalatory Dominance

Rob Armstrong challenges the notion that Europe fears US economic power, considering the mutual interdependence of their economies. Ben Hall responds by highlighting Europe's historical aversion to strong retaliatory measures, fearing unpredictable and severe repercussions from the US (04:23). He explains that the EU's new "anti-coercion instrument" introduced in 2023 could have been a tool for retaliation but was deemed too inflammatory (05:14).

b. European Collective Action Problem

Ben Hall further elaborates on the "collective action problem" within the EU, where divergent national interests hinder unified decision-making. He details the varying perspectives among member states:

• Pro-Retaliation Faction: Led by France and supported by Spain, advocating for stronger measures against the US (08:58).
• Cautious Faction: Including Germany and Italy, concerned about exacerbating a trade war and its impact on exporters (08:58).
• Eastern and Northern States: Worried about broader security implications and the potential erosion of NATO commitments (08:58).

This fragmentation led the EU to opt for the least detrimental option—a modest 15% tariff—rather than a united and forceful response (10:28).

6. Cultural vs. Economic Differences

Rob Armstrong prompts a discussion on whether Europe's restraint is more cultural than economic. Ben Hall concurs, explaining that the EU's foundational principles prioritize free trade and market liberalization, making protectionist measures inherently counterintuitive. In contrast, the US under Trump has adopted a protectionist stance, fundamentally at odds with European trade philosophies (05:21).

7. Internal EU Divisions and Interests

The conversation shifts to internal EU dynamics. Rob Armstrong notes that some commentators praise Europe's non-escalatory approach, arguing that imposing tariffs would harm European consumers by reducing their spending power (06:03). Ben Hall counters this by expressing skepticism, suggesting that the deal is another step in Trump's broader strategy to undermine the global trading system (06:51).

8. Impact on EU's Political and Economic Consolidation

Rob Armstrong references efforts by European leaders like Mario Draghi and Enrico Letta to consolidate political and economic power within the EU. He suggests that Trump’s aggressive policies may have inadvertently strengthened calls for European integration. However, Ben Hall notes that despite initial momentum, progress on market integration and investment remains limited, raising doubts about whether the current trade deal will stimulate further consolidation (11:15).

9. Future Agenda and Uncertainties in the Deal

Looking ahead, Ben Hall emphasizes that the trade deal remains incomplete, with significant ambiguities surrounding sectors like pharmaceuticals and steel (12:10). He anticipates ongoing negotiations and uncertainty, as the EU continues to grapple with the implications of the asymmetric agreement. Hall underscores the need for Europe to reduce its dependence on the US across various domains to enhance leverage and resilience against future US unilateral actions (14:11).

10. Long and Short Investment Views

In the "Long and Short" segment, Ben Hall expresses a bullish outlook on US energy companies, citing the EU's commitment to import up to $250 billion annually in US energy—a figure he deems optimistic but indicative of sustained demand (15:56). Conversely, Rob Armstrong adopts a bearish stance on American manufacturing, arguing that the imposed tariffs will hinder productivity and innovation, ultimately harming the US industrial sector (16:34).

11. Conclusion

The episode concludes with a reflection on the enduring complexities of the US-EU trade relationship. Rob Armstrong and Ben Hall highlight the precarious balance the EU must maintain in navigating its economic policies amidst US protectionism. The unresolved aspects of the trade deal and internal European divisions underscore the challenges ahead, while the investment perspectives offered provide a glimpse into the potential market repercussions.

Notable Quotes:

• Ben Hall (02:42): "No, you're totally right about that. It is wildly one sided and it is in many respects a defeat for the EU."
• Rob Armstrong (03:42): "But however these kind of question mark areas are resolved, this sounds to me like a wildly one sided deal. Am I wrong about that?"
• Ben Hall (05:21): "The EU has been a force for trade liberalization in the world. So putting tariffs on other countries is very much counter to its instincts."
• Ben Hall (08:58): "So you had these very divergent interests within the EU. They probably would have come together if retaliation had become totally unavoidable."
• Rob Armstrong (10:28): "Europe's been living on hope in that department for quite a while."
• Ben Hall (14:11): "The only real answer here is to reduce Europe's dependence on America in all fields."

---

Produced by: Jake Harper
Edited by: Bryant Urstadt
Executive Producer: Jacob Goldstein
Special Thanks: Laura Clark, Alistair Mackey, Greta Cohn, and Natalie Stadium Sadler
Additional Content: FT Premium subscribers can access the Unhedged newsletter for free. A 30-day free trial is available at ft.com/unhedgedoffer.

---

This summary encapsulates the critical discussions and insights from the "Unhedged" podcast episode, providing a comprehensive overview for those who have yet to listen.

Transcript

[PGM Representative]

As a global leader in alternatives today, PGM is capturing the potential of tomorrow. So as you look to diversify your portfolio, PGM offers expertise in seeding, developing and managing a broad range of liquid and illiquid strategies. With over $320 billion in alts across public and private markets, we are helping clients achieve their long term goals. PGM our investments shape tomorrow today.

[Rob Armstrong]

Pushkin the US EU trade deal, if it was in fact a deal, is done and the reviews are in. The German Chancellor Frederick Mertz says it will do the European economy considerable damage. The French Prime Minister says the EU has resigned itself into submission and former European trade mucky muck Carl Falkenberg says the deal is proof that Europe is still an economic giant and a political dwarf. Sounds like six thumbs down. This is Unhedged, the Markets and Finance podcast from the Financial Times in Pushkin. I am Rob Armstrong, coming to you from an unbearably hot and humid New York City, and I am joined from a comparatively cool and comfortable London by Ben hall, the Financial Times Europe Editor. Hi Ben.

[Ben Hall]

Hello Rob.

[Rob Armstrong]

Big week for you. You've been busy. What just happened?

[Ben Hall]

What just happened is that the EU accepted 15% tariffs on 70% of its exports to the US and in return decided to put no tariffs on US goods. These tariffs, these 15% tariffs include cars. In theory they include pharmaceuticals, although that may change when Trump decides a broader global policy on pharmaceutical imports into the U.S. but there are lots of other things that are a little unclear. Does it include exports of European wine and spirits, for example, to the U.S. some of these details still need to be hammered out.

[Rob Armstrong]

As a major consumer of European wine and spirits, I hope rationality prevails in that area. But however these kind of question mark areas are resolved, this sounds to me like a wildly one sided deal. Am I wrong about that?

[Ben Hall]

No, you're totally right about that. It is wildly one sided and it is in many respects a defeat for the eu.

[Rob Armstrong]

How did we get here?

[Ben Hall]

We got here because Europe decided that it wasn't prepared to use its considerable economic leverage to try and extract a better deal out of Trump. And I think it did that for two reasons. One, because it feared that Trump always has escalatory dominance and would inflict huge pain in the trade sphere, but potentially in other spheres as well that would be inimical to Europe's interests, and for the second reason that the Europeans couldn't really decide amongst themselves how muscular to get in response. It's the classic collective action problem that Europe has divergent interests divergent assessments of what was at risk. So they ended up going for the least bad deal, which was a pretty bad asymmetric deal, as you said.

[Rob Armstrong]

Let's take those one at a time, starting with the issue of escalatory dominance, which is. I think of that as what my children have over me in my household. But in the case of Europe and the US Their economies are broadly the same size and they are, you know, interrelated in both directions. For example, the United States sells a hell of a lot of services into Europe, especially digital services. I don't quite understand why Europe should have been more afraid of the US Than the US Was of Europe.

[Ben Hall]

Basically, because Europe doesn't have a history of taking strong retaliatory action. It's not used to it, and it fears the uncertain consequences of doing so. So you're right. They could, for example, have taken a swipe at American technology companies under their fairly considerable new powers to retaliate under something called the anti coercion instrument. This was a new cache of weapons, if you like, that they adopted in the wake of Trump's first term and came into force in 2023. They could have attacked the technology companies in all sorts of ways, but they felt that that would be super inflammatory and that would have. Would have begotten an even more vicious response from the American president.

[Rob Armstrong]

So it's almost like a cultural difference rather than an economic difference between the Europeans and the Americans.

[Ben Hall]

Yes, I think that's absolutely true, because the EU exists to negotiate free trade amongst its members and to liberalize markets and to form a single market in all sorts of goods and services. And also, the EU has been a force for trade liberalization in the world. So putting tariffs on other countries is very much counter to its instincts. And Trump, of course, has completely the opposite view, and he's taking in America in a profoundly protectionist direction, which is alien to the way Europe works, notwithstanding the kind of traditional French sort of protectionist instincts which are still there to a degree inside Europe.

[Rob Armstrong]

We'll come to the differences of views within Europe, but I feel we should stop here for a moment and say that there is a slice of the commentariat and the economic establishment that is congratulating Europe for not escalating here. You know, there is the view that you are putting a tax on your own people when you put a tariff up, and basically all you're doing is reducing the spending power of your own citizens when you do this. And if one country does it to you, not doing it back to them is Precisely the rational response. Now, I'm not, I'm not advocating that. I'm just noting that there is an important line of thought that says Europe's doing the smart thing.

[Ben Hall]

Here it is. And I've heard senior European policymakers reach the same conclusion, which is essentially Trump is imposing a value added tax on American consumers now that as value added tax in, in Europe also works against foreign importers into the block because domestic producers get rebates on their on the tax and foreign producers do not. But it's a tax on consumers that will not, so this theory goes, not disrupt global supply chains or global trading patterns. I have to say that sounds to me a little complacent because I think Trump is destroying the worldwide trade system and this trade deal with Europe is just another episode in his war against global trading system.

[Rob Armstrong]

I want to turn to the second reason that things turned out this way that you mentioned was the kind of European collective action problem, that the range of interests and the kind of legislative or regulatory structures in Europe made it impossible for them to respond in a decisive way. Could you just walk us through in a little bit more detail what you mean by that?

[Ben Hall]

The EU delegates power to negotiate trade trade deals and to take retaliatory action to the European Commission, but the European Commission still needs a support of a majority of member states, for example, in order to take retaliatory action. And I think Ursula von der Leyen, the European Commission president, was preoccupied throughout with maintaining maximum unity within the eu. And the trouble was there are quite divergent views about how hard to hit back the French government.

[Rob Armstrong]

Yeah, exactly. Outline the factions for us. That's what I'm sure.

[Ben Hall]

So the French government was very vocal in calling for the EU to take a stronger stand and to use some of these potent weapons that the EU now has got to hit back at America. And there were others like the Spanish who would have supported that. Then you have the more cautious countries like Italy, run by pro Trump Giorgia Maloney and Friedrich Mertz, who was worried about a kind of trade war spiraling out of control and German exporters being the main victims of it and was under a lot of pressure, I think in particular from German business to try and go for a sort of safety first solution. And then you have those states in Eastern Europe who are worried about spillover from the trade war into other areas and in particular that Trump might start to hedge on America's security guarantee to Europe and commitment to NATO and support for Ukraine as retaliation in some kind of trade war. So the eastern flank countries and the northern countries were most sensitive to that issue. So you had these very divergent interests within the eu. They probably would have come together if retaliation had become totally unavoidable. But in the end, they felt that 15%, even a whopping 15% tariff was better than a trade war and all of those other triggering all of those other risks.

[Rob Armstrong]

We've talked a fair amount on this show about the efforts to kind of consolidate European political power and consolidate the European economic system. These are ideas that have been pushed by people like Mario Draghi and Enrico Letta in various reports. And what we've heard from a lot of Europeans is that Trump's aggressiveness actually opens the door for progress on that front, that the kind of European consolidation story has more fans in a world where the United States is hostile. Do you think that's true? Do you see signs of that effect taking hold?

[Ben Hall]

When Trump returned to power at the beginning of this year, there was a strong sense that Europe really needed to sort of double down on its domestic efforts to integrate its markets and to diversify away from foreign trade, which had become vulnerabilities. Trade with China and now trade with America. The reality is though, that in the last six months there's been very limited progress towards the agenda set out by Mario Draghi to integrate markets and to come up with much more investment, innovation and in infrastructure to really boost Europe's productivity and growth. So will this one sided trade deal spur them into extra action? It remains to be seen, but one can only hope so.

[Rob Armstrong]

Europe's been living on hope in that department for quite a while. So let's turn to the future. What is next for Europe in the broadest sense? Whatever you think of the actual economics, this is an optical defeat for Europe. There are deep questions, as you already referenced to the security situation, other aspects of the transatlantic relationship. What's on the agenda now that this bit is done?

[Ben Hall]

Well, I think the agenda does return to the Draggy plan and the difficult choices that that imposes on Europeans about wanting to integrate and wanting to pool resources in order to promote all of that investment that Europe needs. But I think we still have to get through this trade deal. We don't really have a trade deal. We have a handshake set of verbal declarations which are somewhat incomplete, with some pretty huge question marks. What will the treatment of pharmaceutical exports to America be once Washington has completed its section 232 national security reviews into pharmaceuticals and other products? What's the treatment of steel going to be There are still huge question marks in this trade deal that Europe is going to have to hammer out with America, and there's no guarantee that it will succeed. So I think the uncertainty, which negotiators felt they were ending with this asymmetric deal persists.

[Rob Armstrong]

This seems to be kind of the story with Trump's policies generally. The debate is never over because they're so focused on the individual comments of a single man in the person of the president. And because they're done in such an informal way, there's always more questions to be answered and that seems to be how the president likes it. So I agree with you that this could kind of go on forever, as it were.

[Ben Hall]

Yeah. And I think European leaders know that the only real answer here is to reduce Europe's dependence on America in all fields, whether it's security, technology or access to American markets. And only by reducing those dependencies can you increase your leverage and your ability to stand up to this kind of bully boy tactics. The trouble is it's so much easier said than done and it's a decade of work to actually get there, to reduce these dependencies and a huge amount of money. So I think people conceptually understand where they need to go in Europe, but getting there is going to be hugely difficult.

[Rob Armstrong]

Listeners, we'll be right back with Long and Short.

[PGM Representative]

Speaking of Alternatives, a podcast from pgym. We take you beyond the headlines, exploring timely insights from the industry experts.

[PGM Expert]

Our belief of sizing really is a key metric to think about in this business. In long, short equity and frankly, in any sort of investing, there's really two parts to it. One part is hit rate how many ideas actually work, long or short. But I believe the more important part is the slugging. So for every dollar you lose, how many dollars do you make?

[PGM Representative]

Tune in to Speaking of Alternatives, a podcast from PGYM listeners.

[Rob Armstrong]

Welcome back. This is Long and Short, which is the part of the show where we go long things we like and short things we don't like. Ben, are you long or short something today?

[Ben Hall]

I would have to go long today and long on US Energy companies that now have a huge incentive to drill, baby drill, because Europe, as part of this one sided deal, has agreed to buy up to $250 billion of U.S. energy imports a year, which sounds a totally fantastical number and probably a number that they will never meet. But it does suggest that American energy producers will have a captive market on this side of the Atlantic for years to come.

[Rob Armstrong]

Well, if you're taking the bright side of this stuff, I'll for America. I'll take the dark side for America. I am short the effect of these tariffs on American industry, in particular American manufacturing. I think these tariffs will lead to lower productivity and lower innovation, because that's simply what the history of trade protection suggests. It invites corruption and gaming of the rules and not competing the best you can and making superior products. So I feel extremely dour about what this is going to mean for America outside of the energy industry. And I'd say this is a dark day for us, even though it sounds like a bright day. Ben, thank you for coming in. A great pleasure listeners. I will be in a better mood on Thursday, which is when I will be back in your feed. Until then, stay sharp out there. Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our Executive producer is Jacob Goldstein. We had additional help from Topher for his Cheryl Brumley is the FT's global head of Audio. Special thanks to Laura Clark, Alistair Mackey, Greta Cohn and Natalie Stadium Sadler. FT Premium subscribers can get the Unhedged newsletter for free. A 30 day free trial is available to everyone else. Just go to ft.com unhedged offer I'm Rob Armstrong. Thanks for listening.