Europe Stumbles in Its Attempt to Sidestep Trump’s World Order

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(Bloomberg) — Ursula von der Leyen was supposed to sign the European Union’s largest free-trade agreement on Saturday, proving the bloc’s standing as a geoeconomic force.

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Instead, the European Commission president will have to figure out a way to salvage the Mercosur pact by rallying last-minute support from countries including Italy that helped delay the deal — yet again — over concerns it would hurt domestic farming sectors. 

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Negotiations on the trade accord — with Argentina, Brazil, Uruguay and Paraguay — have been drawn out over 25 years, rankling the South American countries. Brazilian President Luiz Inacio Lula da Silva said earlier this week the time was now or never. 

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Officials say they will try again to sign the deal on Jan. 12, but there’s no guarantee.  

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The ongoing failure to ratify the accord is a blow for the EU, which wants to use the transatlantic agreement as evidence that it could be a global power. It especially wants to prove it can move outside the orbit of China and the US, which have increasingly antagonistic trade relationships with Europe.      

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“This is Europe’s independence moment,” von der Leyen said earlier this week, ahead of a summit when EU leaders would tackle funding options for Ukraine as well as Mercosur.  

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The EU views China as both an economic competitor and a systemic rival and has been navigating an escalating trade confrontation that’s seen both sides impose tariffs on the other’s imports. Earlier this year, Beijing announced plans to tighten controls on its exports of rare earths and other critical materials, showing the EU how vulnerable its industries are. 

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And this summer, the EU accepted what it saw as an unbalanced trade agreement with the US, agreeing to a 15% tariff on most of its exports while pledging to remove all duties on American industrial goods. 

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What Bloomberg Economics Says…

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“Failure to authorize the deal would hurt Mercosur more than the EU economically, but it would be a geopolitical setback for Brussels at a time of rising US and Chinese pressure.”

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—Antonio Barroso. For the full note, click here

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The EU-Mercosur trade pact could help Europe escape its souring dynamics with the US and China. The pact would create an integrated market of 780 million consumers, gradually erase tariffs on goods including cars and give Europe easier access to Mercosur’s vast agricultural industry and resources.

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Critically, that would give the EU economic ties and supply chains beyond the US and China. The deal would also show the region that Europe can offer a credible economic alternative to the two superpowers.

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Failure to secure the Mercosur partnership “would certainly be a blunder of epic proportions for Europe’s ambitions to position itself as a relevant player on the global economic scene,” said Agathe Demarais, senior policy fellow at the European Council on Foreign Relations, a think tank.