Over the past decade, the United States has emerged as the European Union’s (EU) dominant trade partner, with bilateral goods trade worth approximately €1 trillion in 2024. This represents over 20% of the EU’s total extra-regional exports. The US’s growing trade dominance can be attributed to several factors, including robust domestic demand, stagnant export growth to the UK since Brexit, and a decline in exports to China following the COVID-19 pandemic. However, the imposition of US tariffs could potentially disrupt this trade relationship, prompting the EU to seek alternative trade partners.
In the near term, the UK offers the greatest opportunity for the EU to expand trade flows. The existing Trade and Cooperation Agreement (TCA) between the two parties may be renegotiated to improve its terms, with progress possible as early as this summer. Both sides have incentives to strengthen their trade relationship, making the UK a prime target for the EU’s trade expansion efforts.
The EU’s relationship with China has shown signs of improvement, but the trading relationship remains lopsided, with the EU seeking to address concerns over the imbalance. While there are opportunities for cooperation, the EU’s concerns over the trade deficit and other issues must be addressed.
The EU is also pursuing other trade agreements, including the EU-Mercosur deal, which may receive a boost due to the evolving global trade landscape. However, ratification of the deal is still uncertain. Additionally, trade negotiations with countries such as Malaysia, the Philippines, and Thailand have resumed, although EU environmental regulations remain a point of contention.
In the long term, an EU-India free trade agreement (FTA) may offer significant benefits for the EU. Changes to the negotiation process could facilitate progress, but several hurdles must be overcome before an agreement can be reached. Overall, the EU is seeking to diversify its trade relationships and reduce its dependence on the US, while also addressing concerns over trade imbalances and environmental regulations. By pursuing new trade agreements and renegotiating existing ones, the EU aims to accelerate its trade expansion efforts and promote economic growth.