EU, US Near Deal Linked to NATO Defense Spending Hike

The European Union and the United States are close to outlining a trade deal that would include a baseline 10 percent U.S. tariff, with the EU seeking upfront tariff relief similar to exemptions granted to the U.K. ahead of a July 9 deadline set by President Donald Trump to avoid 50 percent reciprocal tariffs. One key development easing tensions is NATO members' recent commitment to increase defense spending to 5 percent of GDP by 2035, a move that EU officials, including European Council President António Costa, expect to boost European purchases of American arms and help reduce the U.S. trade deficit with the EU. This defense spending agreement is seen as paving the way for a broader trade deal, although disagreements and unresolved details remain, and some EU countries fear defense-related disputes, such as Spain's failure to meet NATO spending targets, could disrupt trade negotiations. The trade deficit, a critical issue for President Trump, stands at a record $161 billion in goods, prompting increased pressure to rebalance trade through defense procurement and tariff adjustments. Despite progress on defense and trade talks, notable dissent exists among EU leaders regarding the benefits of increased military spending for European industry. The looming tariff threat and ongoing negotiations underscore the complex interplay between defense commitments and trade relations shaping EU-U.S. ties under President Trump's administration.