Buying U.S. Arms Will Help Europe Unlock Trade Deal With Trump, EU Leader Says
António Costa, one of the bloc’s top officials, says pledge to spend more on defense will cut U.S. trade deficit
- EU’s António Costa said Europe’s increased military spending, as agreed with Trump, will involve buying U.S. arms.
- Costa believes this will help resolve the trade war, as the U.S. has a $236 billion goods-trade deficit with the EU.
- Some EU members want the new defense funds to benefit European industry, while others fear increased debt could rattle markets.
BRUSSELS—Europe’s deal with President Trump to boost its military spending will help defuse a trans-Atlantic trade war, because much of the new money will go toward U.S. arms, one of the European Union’s top two officials said.
“Of course, a large part of this 5% will be spent for sure buying American, and it helps to rebalance the trade relations,” said António Costa, who heads the European Council, in an interview referring to the new target.
“This agreement in NATO paved the way to have an agreement as soon as possible on trade,” he said.
Last week at a North Atlantic Treaty Organization summit, Canada and European members agreed to Trump’s demand that they spend 5% of economic output on defense to meet the threat of Russian aggression on Europe’s border, up from a previous target of 2%.
However, a bruising trade fight between the U.S. and EU remains unresolved. The White House has threatened to raise tariffs to 50% if it doesn’t have a trade deal with the 27-country bloc by July 9.
“On defense, it’s solved,” Costa said of the NATO deal. “On trade, the point is we have a large imbalance in our relations.”
The U.S. runs a $236 billion goods-trade deficit with the EU, according to Commerce Department figures—a gap between exports and imports that Trump frequently rails against. It has a surplus in services trade with the bloc.
“If we invest more on defense and if we buy more American goods, of course, this has a positive impact” in reducing the U.S. trade deficit, said Costa, a veteran European politician who was prime minister of Portugal from 2015 until 2024. The body he now runs groups leaders of the EU’s members countries and decides on major proposals from the European Commission, the EU executive arm led by Ursula von der Leyen.
The U.S. and EU have recently intensified trade negotiations. The bloc proposed lowering tariffs on many American goods and changing some policies the U.S. views as nontariff barriers, among other measures, in a bid to secure relief from some of the Trump administration’s duties, people familiar with the matter said.
German Chancellor Friedrich Merz has urged the European Commission, which runs EU trade policy, to sign a deal with the U.S. that could give his country’s automotive and other industries some tariff relief. “We have to come to a result quickly,” Merz said Thursday.
The details of any agreement could be divisive. But some EU members appear to have concluded that a deal with uneven concessions is better than no deal at all.
“Nobody in Europe wants to escalate,” Costa said. “Nobody wants a conflict.”
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Costa acknowledged that meeting the new 5% NATO goal will be a “huge effort” for some European countries, which are struggling with high debt levels at a time of economic stagnation. NATO includes 23 of the EU’s 27 members and more than 96% of its population.
The EU has offered to help members, loosening fiscal rules to let them spend hundreds of billions more on defense and launching a new fund of 150 billion euros, equivalent to about $176 billion, to lend members money for defense projects.
Member states are arguing over how much of the new funding should be spent on European weaponry.
French President Emmanuel Macron said Thursday that France wants increased military spending to benefit European industry as much as possible, in contrast to Costa’s expectation that new investments will slash the U.S.’s trade deficit with Europe.
“We have truly a European preference,” Macron said.
Costa said the EU can do more by working with NATO so countries coordinate military spending.
Costa also said the EU should pay for common capabilities, such as air-defense systems, that would protect all member states. That could mean the EU going back to financial markets to borrow money to hand out to member states, as it did in 2020 to help the continent recover from the economic shock of the coronavirus pandemic.
The idea of common EU grants for defense is deeply divisive among member states. At a summit in Brussels on Thursday, EU leaders glossed over their differences, agreeing to return to the funding issue in October, when they are next scheduled to meet.
Cash-strapped governments including Italy and Greece say that taking on more debt to pay for increased military spending could rattle bond markets. Meanwhile, rich countries such as the Netherlands and Germany oppose hiking their own defense expenditures while also subsidizing other EU states that have failed to invest in defense.