European Union, Mercosur Trade Bloc Announce New Free Trade Deal

European Commission president Ursula von der Leyen arrives for a meeting in Montevideo, Uruguay, on Dec. 5, 2024. Eitan Abramovich/AFP via Getty Images

After 25 years of stop-and-start negotiations, the European Union and Mercosur—a trade bloc of Latin American nations—have agreed to a free trade agreement.

The EU–Mercosur trade pact will now create one of the largest free trade zones in the world, covering more than 700 million people and about a quarter of global GDP.

Similar to other agreements, the EU–Mercosur trade pact will lower tariffs and trade barriers, allowing companies on both sides of the Atlantic Ocean to export their products without too many hurdles.

Mercosur countries—Argentina, Bolivia, Brazil, Paraguay, and Uruguay—will enjoy liberalized access to EU markets for their agricultural exports, including beef, poultry, and sugar. European Union markets will experience a reduction in levies for various products, such as automobiles, chemicals, and machinery.

The deal will have positive effects on the more than 600,000 companies that export hundreds of products to the Mercosur region, European Commission President Ursula von der Leyen said.

“This is a win-win agreement, which will bring meaningful benefits to consumers and businesses, on both sides,” von der Leyen said in a statement.

The deal, which is expected to save businesses 4 billion euros ($4.22 billion) annually, will now need to be finalized by all 27 EU members.

France had been one of the leading critics of the pact. European farmers have been concerned that the agreement would saturate their markets with cheap beef and poultry imports, undercutting prices for local agriculture.

For years, livestock farmers have pushed back by stating that they cannot compete with South American producers, who have lower labor costs, fewer regulations, and larger farms.

However, the EU chief assured farmers that officials listened to their concerns and that the agreement provides “robust safeguards to protect your livelihoods.”

The Federation of German Industries, an umbrella organization representing 39 industry associations and 100,000 companies, lauded the announcement.

“The agreement provides an urgently needed growth impetus for the German and European economy and brings excellent news for our companies,” said Siegfried Russwurm, the group’s president, in a statement. “By removing significant trade barriers, it will enable European businesses to save approximately four billion euros annually in tariffs.”

It was a landmark announcement for both sides as negotiations have endured since 1999. For the past two decades, Mercosur sought to bolster its shipments of agricultural goods, and the EU attempted to shield its agricultural industry from foreign competition.

A deal was on the horizon in 2010 and 2019 when negotiations made progress on tariffs and environmental provisions, but both sides failed to agree to terms. In the following years, an accord looked unlikely as European officials were concerned over deforestation in the Amazon.

The latest agreement will now feature commitments to stop deforestation, uphold standards on animal health and food safety, and diversify supply chains.

Bracing for Trade Tensions

This marked a significant win for von der Leyen, who secured a second term this past summer, ahead of potential trade strife with the United States.

Von der Leyen, speaking at a press conference surrounded by her Latin American counterparts, called the trade agreement “a political necessity.”

“I know that strong winds are coming in the opposite direction, toward isolation and fragmentation, but this agreement is our near response,” she said. “We are sending a clear and powerful message. In an increasingly confrontational world, we demonstrate that democracies can rely on each other.”

Following threats of levies on Canada and Mexico, President-elect Donald Trump is likely to next point his tariff weapon on the trade bloc, said Christian Dustmann, an economist at the Institute for the Economy and the Future of Work.

“This suggests that he will also use tariffs as a means of exerting pressure on the EU,” Dustmann told The Epoch Times. “For example, to get the EU to go along with his expected course against China. This would put Germany and the EU in an unpleasant dilemma.”

In October, Trump pledged to pass a reciprocal trade act that would make the European Union “pay a big price” for not purchasing enough U.S. exports.

“I'll tell you what: The European Union sounds so nice, so lovely, right? All the nice European little countries that get together,” Trump said at a Pennsylvania rally.

“They don’t take our cars. They don’t take our farm products. They sell millions and millions of cars in the United States. No, no, no, they are going to have to pay a big price.”

Trump has proposed implementing 10 percent to 20 percent tariffs on all imports.

This would not be the first time that Trump introduced trade levies on one of the United States’ largest trading partners.

In March 2018, Trump imposed tariffs of 25 percent and 10 percent on steel and aluminum imports from the EU. The bloc responded by slapping 25 percent tariffs on more than $3 billion worth of U.S. products, including bourbon, corn, and Harley-Davidson motorcycles.

President Joe Biden eventually eliminated these tariffs in October 2021, though with various provisions.

Economic conditions now are very much different in Europe than during Trump’s first stint at the White House.

Last year, Eurostat data showed that the eurozone’s economy registered close to zero growth.

The region’s economic landscape might not be much better moving forward. According to forecasts from International Monetary Fund (IMF) economists, real GDP growth in the eurozone is expected to be 0.8 percent in 2024 and 1.2 percent in 2025.

Andrew Kenningham, the chief Europe economist at Capital Economics, anticipates further weakness in the GDP, accompanied by elevated services inflation, slowing wage growth, and a normalizing labor market.

“The eurozone appears to have lost some momentum and is likely to remain sluggish in the coming quarters,” Kenningham stated in a note.

Dominic Dobryniewski, an economist at Oxford Economics, said the primary cause of Europe’s slowdown has been the effects of the European Central Bank’s tightening of monetary policy between July 2022 and September 2023.

“The impact of the interest rate hikes of the past years has been somewhat obscured by high backlogs in typically interest-sensitive sectors like capital goods, construction, and automotive sectors that helped power production despite waning new demand,” he stated in a September note. “However, that support is now fading, and the true scope of the hit to interest-sensitive sectors is becoming clearer.”

A recent Reuters poll of economists suggests the European Central Bank will cut interest rates by 25 basis points at next week’s policy meeting and at least four more times in 2025.

By comparison, the IMF projects the U.S. economy, the world’s largest, will grow 2.8 percent this year and 2.2 percent in 2025.