The August 2025 US-EU Trade Framework: The Epitome of a Binding-Free Trade Understanding
ZEITGEIST SERIES BRIEFING #72
On 21 August 2025 EU and US authorities issued a statement fleshing out the handshake “deal” made in Turnberry, Scotland at the end of July. Yesterday’s statement has none of the hallmarks of a binding trade agreement, reinforcing the latter’s irrelevance as a vehicle for advancing United States’ commercial interest. For the European Commission, these terms reflect a damage-limitation exercise due to limited leverage. The European concessions are the (last?) price paid by EU Member States for spending the so-called (post Cold War) Peace Dividend, leaving them in a parlous state of dependence on the USA for defence at a time when Russia is flexing its military muscle on the Eastern front. EU commitment to multilateral trade disciplines is now a hostage to security considerations and will almost certainly remain so until European rearmament becomes a reality.
Yesterday's document amounts to little more than an update on the price the EU is prepared to pay to retain some access to the United States’ market and the plan of action—such as it is—going forward. To paraphrase Churchill, this represents the end of the beginning--not the beginning of the end. As this is not a binding accord, risk premia will continue to be factored in by the private sector. Five points are noteworthy in this statement.
1. I have highlighted on the next pages the key verbs in the Framework document. The word "shall" is never used. The language gets very weak in places (e.g. "agrees to consider," "intends to consider the possibility to cooperate..."--you get the idea.) Few specific dates are mentioned. Binding text this is not.
2. Even so, the language on tariff changes will attract a lot of attention because, for example, it looks like the EU "intends" to scrap all tariffs on U.S. industrial goods. Does that mean scrapping the tariffs on industrial goods that happen to be produced in the USA for all trading partners or just for the USA? (As ever, the drafting is ambiguous). Of course, the EU's other trading partners will have a stake in any further EU departures from implementing the equal tariff treatment (MFN) principle.
3. The EU was able to secure treatment for some of its exports that is more favourable than other US trading partners. But there is no mention of special tariff treatment for EU wine and spirits exports to the USA. On the other hand, the U.S. did not get any broad commitments on the regulation of its digital services firms. Both have kept something back for future talks.
4. The statements about the eye-popping big- ticket outlays and investments by EU parties are weaker than U.S. officials have said before.
The EU is not putting up a $600 billion pot for President Trump to decide where to invest and when. No profit sharing either similar to the 90-10 profit share text in the U.S. arrangement in Japan.
5. Compared to the wide-ranging U.S. critique of EU non-tariff barriers, the plans outlined here are very limited. The spat over Value-Added Taxes is not mentioned at all.
Once again, the EU Trade Commissioner put a brave face on this capitulation--arguing that it is better than an escalating trade war. In saying this, he implicitly acknowledges that the EU is unwilling or unable to play hardball with the United States on trade policy--as Beijing did earlier this year. The reason why is clear: for decades European nations have taken a large defence subsidy from the United States. With the Ukraine conflict at a critical stage, Washington DC has made clear what its price is for continued support for Kyiv. European leaders have decided that shoring up its Eastern flank is more important than fussy trade principles that it has championed for decades. Ultimately, this is a brutal demonstration of realpolitik.
Simon J. Evenett is Founder of the St. Gallen Endowment for Prosperity Through Trade, Professor of Geopolitics & Strategy at IMD Business School, and Co-Chair of the World Economic Forum’s Trade & Investment Council.