The deal Donald Trump struck with the UK is bad news for the EU on several levels. For starters, it is intended to signal a trade deal template, but it is the kind of deal the EU would never accept.

Unlike the UK, the EU runs a substantial trade surplus against the US. You cannot simply add the EU’s services deficit into this equation, as the European Commission does, as this number is contaminated by US companies producing in Europe and procuring services from the mothership. On the trade data alone, the EU had a surplus of some $230 billion last year, and there were record increases in the first few months of 2025, as exporters tried to beat the tariffs.

The talks with the EU are not going well. The Americans speak of cultural differences. The EU is not opening up on non-tariff barriers, for example on safety standards for car components, or on food safety. There is not much the EU can offer the US in terms of tariffs, and nothing much beyond the silly promises to buy more US gas, a promise which the EU is not in a position to make. The European Commission yesterday leaked a list of US imports worth €95 billion targeted for counter-sanctions — as a demonstration that it is serious. It also threatened WTO litigation. If you are serious about walking away, you should signal that. The new German government may not want the EU to walk away. From Berlin’s approach, it doesn’t seem like retaliation is an agreed strategy.

But we also have to be clear that a US-trade deal, if agreed, will not be attractive for the European Union. The US-UK deal means lower tariffs for US goods, and higher tariffs for UK goods. Trump still insists on a baseline tariff of 10% and it is unlikely he will shift his positions on European cars and steel and aluminium, as easily as he did for British cars. There are a lot more Mercedes, BMW and Porsches flowing into the US, compared to Jaguars or Aston Martins. If he were to exempt the European car industry from the tariffs, there would not be much point to having those car tariffs in the first place.

The Anglo-American trade deal looks like a political attempt to drive a wedge between the EU and the US. Trump said himself that the UK deal came first because of Brexit. It only really makes sense to see it in that light. If there is no deal between the US and the EU, we are looking at two competing tariff regimes with Western Europe. What happens, for example, if the US car that arrives tariff-free in the UK, then gets sold in the EU? Or the beef? In other words, the UK cannot have its US beef, and not eat it.

But it would not be wise to rule out a US-EU deal. The new German Chancellor Friedrich Merz might push the EU in a different direction, in which a deal may become possible. Merz talked to Trump yesterday for half an hour, we are told. The German leader is confident that he can cut a deal but he must beware the new soft-spoken Trump. It is even possible that he and Merz will hit it off splendidly, and yet no deal will be agreed upon.

Right now, we are in a situation where a deal is possible if the Europeans shift their position on regulation for cars and agricultural imports to some meaningful extent. And yet, it would not be a good deal for the EU. The question is whether this is better than no deal. This is really  a trade-off between 10% and 20% tariffs, possibly even more for cars. Is it worth it? For some reason, it feels like a rehash of the deal-or-no-deal discussions we had during Brexit.

This is an edited version of an article which originally appeared in the Eurointelligence newsletter.

---

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

EuroBriefing

---

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.

---

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

miquelvilam

---