America has reportedly offered Brussels a deal to maintain a 10% tariff on all European Union goods, as it sends out missives to the countries affected. Some time this week, Donald Trump will sit down and write a letter to the Europeans with his big pen, informing them what trade deal they have just agreed to. This could cause havoc, because the Union is far from united. France and Germany are on opposite sides; Italy is with Germany; Spain is with France; and Denmark, the current holder of the EU presidency, is on France’s side too.

The best possible outcome for Europe may just be a 10% blanket rate for general trade, as well as prospective measures for the Section 232 tariffs on cars, steel and aluminum. The tariffs will apply from 1 August, to allow time for the agreed measures to be implemented. One mitigation scheme would be to apply the car tariffs not on gross but net imports. Some of the German carmakers — such as BMW, Mercedes and VW — have US plants from which they export cars to the rest of the world. These exports would be offset. While this scheme sounds like a relief, it actually constitutes a massive incentive for European car companies to shift production to the US. The more you produce there, and the more you export from there, the better the deal.

An even bigger problem is what Trump might list as conditions for this deal. Will he insist that the EU no longer impose any fines on US digital companies? Will he insist that the EU agrees to open up its agricultural markets to American beef and other agricultural products, or any other surprises? Will there be a majority for any of this in the European Council?

For all these questions, answers are hard to find. The agreement would need support from a qualified majority of EU members. If two large countries, in this case France and Spain, are in the No camp, they are not far off a blocking minority. There are as of yet no signs from the EU that preparations are underway for an opening-up of agricultural markets. This would be a dealbreaker. A working assumption is that the main quid pro quo is on policies the European Commission can deliver itself. The Commission has degrees of freedom, for example, on how it applies the Digital Markets Act. But Europeans have to be careful about how this is worded in a trade deal.

The commentary in Brussels suggested there was growing optimism about a deal until around last Thursday. On Friday, the Commission briefed EU ambassadors, who were said to be downbeat about what the US had offered.

What is also often underestimated is that Trump regularly overrules his officials. Now he is emboldened by recent political successes: a victory in the Supreme Court that effectively barred the federal court system from blocking his policies, last month’s Iran attack, and the passage of the Big Beautiful Bill. It’s best not to think that his behaviour can be predicted on any given day. It’s also possible that the whole TACO (“Trump always chickens out”) episode could backfire. One of the reasons why Europeans are surprised by the negative turn of the trade talks is that they have been telling each other the TACO story for too long.

Europeans should also remember that the Trump administration needs tariff revenues to close the budget gap. US-EU trade is the largest bilateral trading relationship in the world. The Trump administration has no hope of achieving its fiscal goals without European tariffs.

Ursula Von der Leyen’s choice is now to accept whatever Trump offers, and possibly risk a split, or not accept it, and also risk a split. Unless the offer is materially different from what the public has been told, she will accept. Ultimately, Europe badly needs a deal.

This is an edited version of an article first published in the Eurointelligence newsletter.

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Wolfgang Munchau is the Director of Eurointelligence and an UnHerd columnist.

EuroBriefing

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China is trying to catch up with America on artificial intelligence. The Wall Street Journal has reported that Zhipu AI — one of China’s six “AI tiger” LLMs — has released a new model that can rival leading US systems, including Anthropic’s Mythos, in cybersecurity tasks such as pinpointing security bugs. While this marks a milestone in China’s drive to catch up with Western AI capabilities, strong performance on a single benchmark does not mean it has taken the lead. Chinese models still lag behind their Western counterparts in broader capabilities, such as autonomous operation. Skepticism is therefore warranted before resorting to hysterical conclusions, but complacency about the geopolitical implications of China’s AI advances would be an even greater mistake.

On the infrastructure side, Chinese AI is still constrained by access to advanced chips, with American labs way ahead in computing capacity as well as investment. Analysis from earlier this year suggests that Chinese models are likely to be at least a few months behind those in the US. But they are still continuing to make progress, or that the geopolitical importance of AI will be decided only by whose LLM has ventured deeper into the technological frontier. The practical applications of AI, countries’ to capture foreign markets, and the application of AI into the real economy will matter just as much.

Here, China may hold an advantage. As with its dominance across many critical supply chains, Beijing may not need to produce the most advanced AI systems — only those that are affordable and widely deployable. In doing so, it could consolidate global influence by supplying functional, low-cost AI at scale.

Beijing seems to be pursuing exactly that path, developing an AI “open-source” strategy that offers affordable, widely available AI models for companies and individuals to use and modify as they wish. The production of the DeepSeek AI model, which matched the performance of Silicon Valley tools such as ChatGPT at a fraction of the cost for users, created goodwill among Chinese models with developers.

The four most popular models on OpenRouter, an AI hardware platform for developers, are now all Chinese. The goal for China is not only to win the frontier-model race, but to make its systems the default layer of AI adoption across industries and global markets. For most economies, the choice is increasingly between an affordable tool they can deploy now and a more robust one that may be out of reach.

And while the countries adopting Chinese models may be exposed to political pressure and cyber threats from Beijing, safer and more capable alternatives matter little if they are unaffordable. American AI companies are already under pressure to monetize products whose operating costs are rising. If Chinese open-source models become the cheap default for startups, universities, governments and businesses across the developing world, then America’s AI lead will be eroded from below.

Perhaps more concerning for America in the long run is how AI can give Chinese manufacturing even more strength, through the ongoing integration of AI as a general-purpose technology. China’s new Five-Year Plan mentioned AI more than 50 times and includes an “AI+” action plan aimed at spreading AI across the economy.

Beijing has been pioneering automation of its critical infrastructure for years, with promising recent results in increasing warplane production capacity. In that regard, China’s open-model strategy and manufacturing dominance will reinforce each other. Cheap, adaptable models accelerate deployment across the real economy while those deployments generate real-world data and use cases that can feed back into further model improvement.

The United States should not dismiss the importance of its lead in the AI race. That lead worries Beijing, not least because a more automated Chinese economy would also become more vulnerable to AI-generated cyber threats. But nor should Washington assume that China cannot catch up with American capabilities over time.

This AI competition represents part of a broader struggle over tech supply chains and geopolitical influence. Decisions over whether to adopt US or Chinese models could produce a more fragmented global reality, with different regions relying on different cloud providers, chips and security structures. The result will likely be a global economy which is divided into competing spheres, rather than one which produces a single winner.

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Miquel Vila is a political and geopolitical risk consultant focusing on industrial strategy, critical infrastructure and global supply chains.

miquelvilam

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