European Council President António Costa stated that Europe's new commitment to ramp up defense spending — particularly by buying U.S. weapons — could be the key to unlocking a trade deal with President Trump and averting a transatlantic tariff clash.

Defense Spending as a Diplomatic Lever

Europe’s pledge to spend 5% of its GDP on defense, agreed at last week’s NATO summit under U.S. pressure, is now being positioned as a diplomatic tool to secure a broader economic agreement with Washington. António Costa, who leads the European Council, said the increased budget would largely flow into U.S. defense contracts, helping reduce the trade imbalance Trump frequently criticizes.

“Of course, a large part of this 5% will be spent for sure buying American,” Costa said in an interview. “It helps to rebalance the trade relations.”

Costa added that this NATO agreement “paved the way” for reaching a long-delayed trade accord, as the EU seeks to avoid retaliatory tariffs. The Trump administration has threatened to raise tariffs to 50% on EU goods if a deal isn’t reached by July 9.

EU Offers U.S. Market Access, But Rifts Persist

Brussels has proposed lowering tariffs on American goods and relaxing certain regulations to defuse tensions. Germany’s Chancellor Friedrich Merz pressed for a swift deal to protect EU industries, especially the auto sector, from heavy tariffs.

Yet disagreements persist. Some EU countries worry that unequal concessions would leave them exposed. “Nobody in Europe wants to escalate,” Costa emphasized. “Nobody wants a conflict.”

The U.S. currently runs a $236 billion goods-trade deficit with the EU — a figure Trump rails against regularly, despite a U.S. surplus in services trade.

European Unity Tested Over Arms Purchases

While Costa presented U.S. arms buys as a path to trade peace, others in the EU see it differently. French President Emmanuel Macron voiced clear opposition to heavy U.S. procurement, insisting defense money should benefit Europe’s own military industries. “We have truly a European preference,” Macron declared.

Still, meeting the new 5% NATO spending goal will be a “huge effort,” Costa admitted. Some countries face economic stagnation and high debt levels. To ease the burden, the EU has loosened fiscal rules and launched a €150 billion ($176 billion) loan fund for defense projects.

The debate now centers on how much of that sum should go to European versus American suppliers — a politically charged question as fiscal hawks resist subsidizing poorer members.

Toward Shared European Capabilities?

Costa advocated for pooling resources at the EU level to develop shared systems like air defenses. This could require borrowing jointly from financial markets — echoing the EU’s pandemic recovery fund in 2020.

However, member states remain divided. Wealthier nations like Germany and the Netherlands resist the idea of subsidizing other states' military budgets, while southern countries like Italy and Greece fear market backlash over new debt. EU leaders agreed to revisit the issue in October.