by Muhammad Asif NOOR
More than 140 days have passed since July 27, 2025, when European Commission President Ursula von der Leyen and U.S. President Donald Trump finalized their tariff framework in Scotland. The agreement introduced a 15% baseline tariff on most EU goods exported to the United States, with limited exemptions for sectors like aircraft, generics, and certain raw materials. In return, the EU offered vague commitments, $600 billion in U.S. investments and $750 billion in American energy purchases, while eliminating duties on U.S. industrial goods. Presented as a compromise to dodge escalation, the deal has sparked relentless criticism from EU business associations, economists, and officials who highlight its imbalances and loopholes. The latest indicators from Eurostat, the European Commission, and industry surveys expose a grim reality that tariffs are eroding Europe’s export competitiveness, hammering key industries, and capping growth amid persistent uncertainty.
This framework’s non-binding nature is leaving enforcement ambiguities that heighten transatlantic friction risks. The euro’s 5-7% appreciation against the dollar since mid-2025 has further priced European goods out of the U.S. market.
Eurostat’s November 25, 2025, release on Q3 data reveals the damage. The EU’s goods trade surplus with the U.S. contracted to €40.8 billion, down 13.3% from Q2’s €47.1 billion and nearly half the Q1 peak of €81.2 billion, driven by pre-tariff stockpiling. EU exports to the U.S. fell 0.8% quarter-on-quarter in Q3 after a 7.1% Q2 drop, with preliminary October-November trends indicating ongoing softness. The Commission’s vulnerability assessment shows U.S.-bound exports averaging 3% of EU GDP, facing an effective 10% tariff blend, translating to a 0.3 percentage point GDP drag, per QUEST models, with higher exposure in Ireland (0.6%) and smaller states reliant on niche exports.
The pain spans the bloc. Beyond Germany’s 23.5% August U.S. export plunge (per Destatis), France saw Q3 machinery and luxury shipments decline 8-10%, Italy’s vehicles and fashion 12%, and Spain’s agri-food products 7%, according to national reports. Ireland’s pharma exports, partially exempt, still dipped amid chain disruptions. The eurozone’s export expectations, tracked by surveys like Ifo’s equivalents, hover near multi-year lows. ING economists project an 8-17% cumulative drop in EU-U.S. exports over two years, warning that tariffs, combined with currency headwinds, have neutralized exports as a growth driver for a trade-oriented continent.
Tariffs have hit Europe’s industrial base hard, exacerbating energy costs, Chinese competition, and supply bottlenecks. The automotive sector, from Germany’s VW to France’s Renault and Italy’s Stellantis, grapples with the 15% rate, up from 2.5%, plus 50% on steel/aluminum and add-ons for parts and commercial vehicles since November. This opens doors wider to duty-free U.S. rivals. Volkswagen reported nine-month profits down 58% to €5.4 billion, blaming €5 billion in tariff costs; Mercedes-Benz saw profits halve. Bloc-wide, auto output risks a 0.3-0.5% GDP hit in exposed regions like Slovakia and Czechia.
Machinery and engineering, Dutch, Swedish, and Italian strengths, face compounded levies and bureaucracy, with Q3 U.S. exports down 9% EU-wide. The European chemical sector, dominant in Belgium and the Netherlands, watched Q1 surpluses of €54.1 billion evaporate to €23 billion by Q3. The industry council forecasts a 2% 2025 output decline, citing sharp North American order drops. Manufacturing PMIs underscore the similar gloom. The S&P Global’s November reading at 45.2 signaled accelerating contraction, the sharpest in months, with new orders and output falling steeply. Trade diversion worsens the blow, U.S. duties on China redirect cheap goods to Europe, depressing prices in electronics and textiles.
With exports faltering, Europe’s recovery lags. The Commission’s Autumn 2025 Forecast (November 17) projects 1.4% EU GDP growth for the year—modest and 0.2 points below pre-tariff baselines—with net exports dragging into 2026-2027. Bruegel and Conference Board models estimate a 0.2-0.3% short-term hit, potentially 0.7% longer-term if uncertainty persists.
The ECB’s pending December update is expected to echo “weak” near-term momentum amid trade frictions. Country variations highlight uneven suffering. Germany’s stagnation contrasts milder French/Italian resilience via services, while eastern Europe’s manufacturing exposure amplifies risks. Business sentiment remains depressed, with reforms deemed inadequate against global headwinds.
Political scrutiny is rising. Members of the European Parliament have begun to demand clearer limits, safeguards, and time bounds on tariff preferences. Yet action has been cautious. Anti-coercion tools remain unused, and retaliation has been avoided to preserve dialogue. Restraint has value, but it also carries costs when the imbalance persists.
Europe now faces a strategic choice. It can continue to absorb the drag in the hope that stability will eventually return. Or it can adjust on it own terms, strengthening the single market, diversifying trade partnerships, and being prepared to use reciprocity to defend its interests. This is about restoring balance in a relationship that has tilted recently after the second Trump administration.
Tariffs are not merely economic instruments. They shape expectations, investment, and trust. When they become routine among partners, they redefine the rules of engagement. Europe’s experience since July shows that even a truce can impose lasting costs if it lacks symmetry and clarity.
The Scotland agreement bought time. What Europe does with that time will determine whether the current slowdown becomes a temporary adjustment or a lasting constraint. Accepting a low growth equilibrium as the price of stability would be a strategic mistake. Reclaiming agency, through diversification, integration, and credible economic defense, remains the more sustainable path in an era where protectionism is no longer the exception but a defining feature of global trade.
