BREAKINGVIEWS-Europe’s absurd US investment pledge brings risks

By Pierre Briancon

BERLIN, July 29 (Reuters Breakingviews) - Donald Trump is a master of the art of making brash promises he has no intention of keeping. Ursula von der Leyen appears to have done the same to clinch the European Union’s controversial tariff deal with its largest trading partner. But the European Commission president’s vague pledge that $600 billion of European investment will flow stateside in the next three years is risky. If the U.S. president decides that the Europeans have failed to keep their end of the bargain, he will have an excuse to tear up the agreement.

Just a day after announcing the deal that will impose a 15% charge on most European imports to the U.S., the two sides seemed at odds on many details – including the EU’s investment promise. The White House said on Monday that the “massive” pledge would be “in addition” to current investment flows from the bloc, which it said exceed $100 billion a year. By contrast, the European Commission said on Tuesday that EU companies had simply “expressed interest” in investing such an amount in the U.S. by 2029 – but didn’t specify it would be on top of existing flows.

In either case, it would be a big increase. According to the Bureau of Economic Analysis, Europeans last year sent some $205 billion of new investments across the Atlantic. Strip out the $53 billion from the United Kingdom, and the EU number is closer to $150 billion. If the White House is correct, EU firms would have to more than double their investment spending every year until 2028 to deploy an extra $600 billion. Even the EU’s more modest interpretation implies a sustained one-third jump from 2024 levels. This is as implausible as the EU’s equally brash promise to import American energy worth $750 billion.

Neither pledge may be binding. The deal clinched by Trump and von der Leyen has not yet been formalised in a document signed by both parties. Commission officials hope such a text might be signed by August 1, when the U.S. tariffs come into force. But even then Brussels cannot direct investment decisions by private European companies. Unlike Japan, which promised a similarly vague $550 billion investment fund, the EU cannot even support or subsidise U.S.-bound investments, as these powers belong to its members. Any transatlantic investment drive is also at odds with policies to encourage investment and boost productivity at home.

Whether the lure of the U.S. market will trigger an outbreak of enthusiasm among European investors in the next few years is dubious. Tariffs may help persuade carmaker Volkswagen VOWG.DE and luxury giant LVMH LVMH.PA to produce more in the world’s largest economy. But they must also factor in the effect of trade barriers on supply chains, Trump’s unpredictable policies, and the consequences of higher import prices on U.S. growth and inflation.

If Trump’s trade deals fail to deliver the economic bonanza he promises his voters, he may look for an excuse to revisit the EU deal. Von der Leyen will then regret having made a vague promise that she knew she could not deliver.

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CONTEXT NEWS

The European Union has pledged to invest $600 billion in the United States over the course of President Donald Trump’s term, the White House said in a fact sheet about the EU-U.S. trade deal published on July 28. The White House said that the investment would be “in addition” to the more than $100 billion which EU companies already invest in the U.S. every year.

European Trade Commissioner Maros Sefcovic said in a press conference on July 28 that the $600 billion was “anticipated” investments due to flow to the U.S.