BRUSSELS – On December 6, the European Union (EU) reached a major trade agreement with South American countries, marking a significant milestone in global trade amid looming threats from President-elect Donald Trump’s potential tariffs.
The deal, forged between the EU and Mercosur – an economic bloc that includes Argentina, Brazil, Paraguay, and Uruguay – is poised to become one of the world’s largest trade zones. If ratified, it would represent the EU’s largest trade agreement to date. The agreement has gained importance in light of Trump’s threat to impose high tariffs on a range of products, which could disrupt trade with the US, Europe’s largest trading partner.
A Strategic Response to Trump’s Policies
With Trump indicating a possible 10-20% tariff on global exports and more severe tariffs on Chinese goods, European leaders are pushing for diversification to mitigate the effects. European Commission President Ursula von der Leyen emphasized that the agreement, which connects over 700 million people, is a response to rising global isolationism. “Openness and cooperation are the true engines of progress and prosperity,” she remarked in Uruguay, signaling Europe’s commitment to global trade despite growing protectionism.
The trade negotiations, which began 25 years ago, had faced multiple setbacks but gained renewed urgency under Trump’s administration. Von der Leyen highlighted that the agreement would save European businesses up to 4 billion euros annually in export duties.
Benefits for South America
For Mercosur, the trade deal offers expanded access to European markets, particularly for beef and industrial products, aligning with the region’s interests in diversifying exports. Additionally, the deal is attractive as China, a major buyer of agricultural products, is poised to increase its domestic production, reducing demand for goods from countries like Argentina and Brazil.
The inclusion of Bolivia in the deal could also be a possibility, should it align with Mercosur’s trade rules.
Impact on European Industries
The agreement is seen as especially crucial for Europe’s struggling economy, with Germany – the EU’s largest exporter to the Mercosur region – poised to benefit. Industries like automobile manufacturing, pharmaceuticals, and luxury goods stand to gain from lower tariffs on imports and exports between the two blocs.
In particular, German carmakers like BMW, Fiat, Peugeot, and Volkswagen, along with pharmaceutical companies like Novartis and Sanofi, are set to benefit from easier access to South American markets. Spain also anticipates a boost in exports, with Prime Minister Pedro Sánchez estimating up to a 40% increase and the creation of 22,000 jobs.
France’s Opposition
Despite the promising economic outlook, the deal has faced significant opposition from France. French farmers, fearing that cheap imports of beef and wheat produced with hormones and pesticides banned in Europe, have strongly opposed the agreement. This backlash has been echoed by Poland and Italy.
President Emmanuel Macron has called the deal “unacceptable,” signaling France’s intent to block the agreement. The French government is particularly concerned about the potential for food dumping, which it fears could threaten the livelihoods of European farmers. Environmental groups have also raised concerns, arguing that the deal could exacerbate deforestation in the Amazon to make way for increased agricultural production.
France’s resistance puts it at odds with the EU’s push to finalize the agreement, and it remains to be seen whether other countries will follow suit.
Looking Ahead
While the trade deal represents a strategic pivot for Europe, it also signals the EU’s intent to push forward with its global trade ambitions, even as the US and China grow increasingly combative. As the EU works to finalize the agreement, its ability to balance internal opposition with the broader goal of global economic cooperation will be tested in the coming months.