Amid rising geopolitical tensions and fiscal pressures, the European Union (EU) faces a dual challenge that could shape its economic and strategic trajectory for years to come — negotiating trade tariffs with the United States (US) and managing defense spending commitments. While there are signs that tariff negotiations may lead to an agreement, the EU is confronted with a stark reality: its ambitious defense planning cannot be realized without key U.S. technology and products.
European defense manufacturing remains fragmented, with limited production capacity and lacking critical technologies in areas such as air defense, satellite support, and advanced fighter systems. This dependence on American military exports has not gone unnoticed by Washington, which is leveraging it as a bargaining chip in trade talks.
According to Bloomberg, the EU and the U.S. are engaged in intensive discussions aimed at reaching a temporary trade deal by July 9 to avoid the imposition of steep U.S. tariffs — up to 50% on a wide range of European exports. The European Commission appears willing to accept a uniform 10% tariff on many goods, provided that exceptions and lower rates apply to strategic sectors like pharmaceuticals, semiconductors, alcohol, and commercial aircraft.
At the same time, the EU seeks relief from existing tariffs of 25% on cars and 50% on steel and aluminum — measures unilaterally imposed under the Trump administration that affect over €380 billion in European exports.
The link between defense dependence and trade relations is becoming increasingly tangible. European Council President António Costa stated clearly that purchasing more American weapons would help balance trade ties and pave the way for a new agreement. He argued that Europe’s decision to take greater responsibility for its own defense aligns with U.S. demands, making a deal more feasible than ever.
However, not everyone shares this optimism. French President Emmanuel Macron insists on strengthening Europe’s domestic defense industry, advocating that public defense spending should primarily benefit European companies. Similarly, some Danish lawmakers have raised concerns about national security risks tied to acquiring American military equipment, particularly in light of former President Trump’s remarks on potentially annexing Greenland.
Nonetheless, the reality leaves little room for maneuver. As Bloomberg points out, the European defense sector lacks both the technological capability and production capacity to meet the continent’s ambitious armament plans. Executives from Saab and Finland’s Insta admit that even with increased investment in European systems, gaps will remain in crucial areas like aerial defense, missile protection, and satellite-guided navigation.
On the trade front, the EU is reportedly preparing two lists of retaliatory measures should negotiations fail. One worth €21 billion targets politically sensitive U.S. states (e.g., products from Louisiana, agricultural goods), while a second list valued at €95 billion includes items such as American cars, Boeing aircraft, and bourbon whiskey.
EU Trade Commissioner Maroš Šefčovič is expected to travel to Washington for final negotiations, with the European Commission considering outcomes ranging from a lopsided but acceptable deal to a complete breakdown of talks. In the latter scenario, the U.S. could walk away and impose across-the-board tariff hikes, prompting the EU to explore additional restrictive measures, including export controls or exclusion from public contracts.