EU Affairs Dealing with the US

The barometer shows that defence and security, as well as competitiveness, are considered to be the top policy priorities the Parliament should address. The data shows 66% of citizens want the EU to play a greater role in protecting them against global crises and security risks. Meanwhile 89% say that member states should act more united to face current global challenges. And global challenges there are in spades.

Last month’s EU Affairs update came just before President Trump dropped Liberation Day on the world like a tonne of bricks on a trampoline. A thud of tariffs, a sharp sinking of the markets under the weight of the news, followed by a quick rebound when the bricks were snatched back just a week later.

Whether it was the reaction of the markets or the fact that so many targeted countries flocked to the President’s door to sign a deal that caused the 90-day repeal is up for debate. But the EU has a 3-month stay of execution on the 20% blanket tariff they were initially succumbed to.

According to the Centre for Strategic and International Studies, with EU exports to the US accounting for 2.1% of EU GDP, a tariff of 20% could have seen a 0.4% hit to the EU’s GDP, something that could have been amplified against a backdrop of slowing global trade flows, retaliation or escalation. 3-month pause aside, Oxford Economics is expecting a dip in GDP growth for the Eurozone, forecasting 1.2% in March 2026 and 1% in April 2026.

Unlike the UK, the EU had been drawing up countermeasures to Trump’s tariffs. But upon the repeal, the European Commission issued a statement suspending over €21 billion worth of tariffs on US imports with the hopes of allowing time and space for negotiations.

An EU-US trade deal now might actually be on the table, thanks to a visit to Washington from Italian Premier Giorgia Meloni last week. Described as a ‘warm meeting’, the conclusion saw Trump stating ‘there will be a trade deal 100%. But it will be a fair deal’. What a ‘fair deal’ means in Trump-speak is somewhat unclear. But, with the potential for a summit in Rome later in the year, at which Trump could get in a room with EU leaders, things could be clarified. A proposed agenda could centre on defence spending, immigration and, of course, tariffs.

The US might be first in line at the moment, but the EU also has a line of nations across the globe eyeing it up, fancying it as a stable and predictable oasis amidst what is absolutely not a stable or predictable global environment. EU Commission President, Ursula von der Leyen has praised the ‘steadfastness’ of the EU against global volatility. It’s why she has nations like New Zealand, Malaysia, the Philippines, Canada, India and the United Arab Emirates knocking on the Commission’s door.

The EU has seen a shift in urgency for international engagement, with Von der Leyen pledging the conclusion of a trade deal with India, the exploration of closer ties with the Comprehensive and Progressive Trans-Pacific Partnership and a wink-wink-nudge-nudge to Australia post Australian elections at the start of May.

Add China into the mix, and the EU is a little more sceptical. Beijing is keen to reset ties with the bloc, having sent trade delegations to Europe’s capitals in the hope of finding new export markets given how the US isn’t necessarily the most attractive to Chinese companies at the moment. But the EU is worried that it will become a dumping ground for Chinese goods, in that China would export its excess to European markets at below market costs, harming local EU manufacturers and suppliers. Whilst the EU does have anti-dumping and trade protection measures in place, in some cases, investigations can take longer than it takes for goods to flood the market. The EU is also reticent about the security risks of aligning too closely with China, given its role in numerous cybersecurity attacks across the bloc in recent months, and its positioning on Russia and North Korea.

That ‘competitiveness, economy and industry’ was number two on the list of priorities identified in the Eurobarometer reflects much of the work that the European Commission has set forth to bring the EU higher up the global race.

The EU has already published its first and second omnibus packages to simplify regulations on sustainability and investment. The plan is to boost competition by reducing the amount of bureaucracy involved in sustainability reporting and due diligence requirements for businesses, making it easier for firms to comply with regulation, and streamlining administrative processes. A third package is expected to be completed in Q2 2025, which includes greater detail for small mid-caps and delves deeper into ESG reporting requirements.

The EU, along with the rest of the world’s top economies, is also vying for the top spot in the AI race. (Have a read here for a dive into trends in this space, written by our Science, Innovation and Tech lead, Erin Young) At the start of the month, the European Commission published its AI Continent Action Plan, with the aim of shaping the next phase of AI development, boosting economic growth and strengthening competitiveness in areas such as healthcare, cars and science.

According to the European Commission, only 13.5% of EU companies currently use AI. Whilst this figure does jump to 41.2% when looking at large companies, the Commission is aiming to significantly increase the uptake of this technology. It has put €200 billion into boosting AI development in Europe, €20 billion into financing five AI gigafactories and will build 13 AI factories to support start-ups, industry, and research activities.

Elsewhere in Q2 2025, we are expecting the EU’s Startup and Scaleup Strategy. This initiative has just finished its consultation phase and is in preparation for publication. The European Commission has said the “Strategy aims to foster an innovation-friendly environment that makes it simpler and faster for European innovative startups to grow and scale up in the Single Market. It is expected to address the difficulties that European startups and scaleups face in accessing capital, markets, services, infrastructure as well as talent needed to enable them to thrive in Europe and compete globally”.

For a more detailed look into the EU’s work programme for 2025, you can follow this link to a helpful explainer of what is coming down the road that matters for business.

By next month’s edition of this EU Affairs newsletter, the much-anticipated EU-UK summit will have concluded. In the diary for 19^th May, the summit is set to finalise plans for a defence and security pact. It will also cover many of the policy priorities that are underpinning Starmer’s wider reset of relations between the EU and the UK, for example, agrifoods and youth mobility. So, with that in mind, stay tuned for our thoughts next month!