EU watches surplus halve as US links tariff relief to tech retreat

BRUSSELS (CN) — The European Union’s trade surplus with the United States collapsed by half in the third quarter data showed Tuesday, underscoring the damage from American tariffs as the bloc weighed U.S. officials’ demand for concessions on tech regulation in exchange for any relief.

The EU’s goods trade surplus with the United States shrank to 40.8 billion euros ($47.2 billion) in the third quarter from 81.2 billion euros in the first quarter — a 50% decline — according to data released by Eurostat. The collapse came even as companies rushed chemical and pharmaceutical shipments across the Atlantic before tariffs took full effect, a temporary surge that masked deeper damage to European manufacturing.

The grim trade figures underscore the stakes in Monday’s confrontational meeting in Brussels, where Commerce Secretary Howard Lutnick told European trade ministers that any deal to reduce punishing 50% tariffs on steel and aluminum depends on the EU changing how it enforces its flagship digital regulations.

“Once they set that framework that we are comfortable with and we understand it, resolve these outstanding cases that are old, then I think we can go and attack the steel and aluminum,” Lutnick later told reporters alongside U.S. Trade Representative Jamieson Greer. The Monday meeting marked their first official visit to Brussels since negotiating July’s trade agreement, which established a 15% tariff on most EU exports to the United States.

The fight has global implications. When Brussels writes digital rules, tech giants typically apply them worldwide rather than run separate systems for different markets. If Brussels backs down, it wouldn’t just reshape Silicon Valley’s operations in Europe — it would change the rules everywhere.

The meeting came days after the European Commission — the EU’s executive arm — unveiled a package that scales back data privacy requirements and pauses some AI regulations. Officials called it part of a “simplification drive” — but critics described it as capitulation to U.S. pressure. EU Tech Commissioner Henna Virkkunen briefed Lutnick and Greer on the proposals during a separate meeting Monday.

“Our companies are suffering from considerable declines in sales,” German Economy Minister Katherina Reiche told reporters Monday. Finished machinery sits in warehouses and at ports, she said, caught between 50% tariffs and U.S. buyers unwilling to absorb the cost. The machinery sector’s trade surplus was cut in half between July and August alone.

EU Trade Commissioner Maroš Šefčovič noted the irony: The U.S. wants to reindustrialize, “and a big part of it are also the machines which are supplied from the European Union to the United States of America.”

But Germany’s struggles run deeper than the immediate tariff pain. Brussels projects German GDP will grow just 0.2% this year after contracting 0.5% in 2024.

Michael Ehrmann, professor of central banking at Frankfurt School of Finance and head of the European Central Bank’s monetary policy research division, said a planned fiscal stimulus alone won’t solve Berlin’s competitiveness crisis.

“Additional structural reforms are strictly necessary,” Ehrmann told Courthouse News.

The machinery and vehicles sector — Germany’s industrial core — saw its trade surplus with the United States decline to 13.8 billion euros in September from 16.4 billion euros a year earlier, according to Eurostat data. German automotive exports to the U.S. were down 20% year-over-year by August.

The German automotive industry association VDA acknowledged in an email exchange with Courthouse News that exports were “heavily influenced” by American tariff policy: German automakers shed 51,500 jobs — nearly 7% of their workforce — during 2024-2025.

Lutnick didn’t call for scrapping the Digital Markets Act or Digital Services Act outright, but said their enforcement needs to become “balanced.”

“If the European Union can find a way to have a balanced digital set of rules, I think the European Union can see a trillion dollars of investment, and that would add a point and a half to European GDP,” Lutnick said.

Greer spelled out American grievances in more detail. The Digital Markets Act sets thresholds “to the extent that it’s nearly only U.S. companies that are captured,” he said.

Greer said the U.S. wants to make sure American companies with global business models don’t see “their global revenues affected” by European regulations. Under its tech regulations, the EU can fine companies up to 10% of their worldwide annual revenue for violations, with repeat offenses potentially triggering fines of up to 20% — likely exceeding $20 billion for companies like Apple or Google based on their global revenues.

In September, the EU hit Google with a 2.95 billion-euro fine in an antitrust case over digital advertising practices. The commission also opened investigations into Amazon and Microsoft Nov. 18 under DMA provisions.

“European laws are not discriminatory, they are not aimed at U.S. companies,” Šefčovič insisted Monday, though he acknowledged digital regulation is “one of the issues the U.S. wants to discuss.”

“We are prepared to respond to the question as the U.S. is prepared to respond to our inquiries and our suggestion on the steel and other subsectors,” he said.

Asked later whether changing digital rules was a red line for Brussels, Šefčovič said EU officials had explained how the legislation works and insisted “we just simply need to do more of the explanation in that regard.”

Brando Benifei, an Italian member of the European Parliament who chairs the committee on internal market and consumer protection, rejected the trade-off outright.

“Italian machinery and steel producers need predictable access to the U.S., but that must be secured through EU-U.S. negotiations on Section 232-style measures, not softer antitrust,” Benifei told Courthouse News, referring to a U.S. trade law provision that allows the president to impose tariffs on national security grounds.

Both sides said they would continue discussions on outstanding issues including steel tariffs and additional product categories but offered no timeline for reaching agreement.

For European governments dealing with sluggish economic growth and angry manufacturers, the message from Washington was clear: The path to tariff relief now runs through Brussels’ willingness to reconsider its approach to regulating U.S. tech companies.

Lutnick used similar language about the potential of the transatlantic partnership. “The United States has a $30 trillion economy. The European Union has a $20 trillion economy. If you work together and we build those standards together, that $50 trillion trading block is the most important in the world.”

But that partnership, as Monday’s meeting made clear, comes with conditions attached. Lutnick framed the choice in stark terms: “If they take the foot off this regulatory framework and make it more inviting for our companies, they can get the benefit of hundreds of billions, possibly $1 trillion of investment.”

Whether Brussels will take that deal remains an open question as the trade surplus continues to shrink.

Courthouse News correspondent Yuval Molina is based in Brussels, Belgium.