Staff Report
A new document sent to European Union legislators outlines a stark warning from the United States, indicating potential retaliatory measures if the EU proceeds with plans to prioritize European firms in its forthcoming long-term budget. The dispute centers on specific provisions within the EU’s proposed multi-annual financial framework, covering the period from 2028 to 2034, which includes a substantial €402 billion fund aimed at bolstering competitiveness by favoring the production of key goods, particularly in the defense sector, within EU member states. This approach, designed to protect strategic and economic security interests, could effectively exclude foreign companies from accessing significant EU financing.
The American stance, detailed in what is termed a “non-paper,” explicitly states that an expansion of such “European preference” measures in EU defense funding would prompt a comprehensive review of all potential response actions from Washington. Among the most significant threats is a potential rollback of existing “Buy American” blanket waivers and exceptions currently granted under Reciprocal Defense Procurement Agreements (RDPAs) with 19 of the 27 EU member states. These waivers are crucial, as the “Buy American Act” typically mandates that the US government, including the Department of Defense, prioritizes domestically manufactured products for public procurements, with exceptions often forming the basis of transatlantic defense trade.
Washington argues that these proposed European preferences would undermine “partnership” and “collaboration” with the US, advocating instead for a “made with Europe” system. In the context of defense, the US proposes a “made in NATO” approach, suggesting a broader alliance-based industrial strategy rather than a purely EU-centric one. This latest diplomatic friction follows previous trade tensions that arose with the creation of the Security Action for Europe program in 2025, which also included a European preference for joint purchases of arms and military equipment. Such initiatives highlight a growing divergence in transatlantic economic and industrial policy.
The drive for a “made in Europe” approach has gained considerable traction, particularly championed by France and the European Commission, influencing several legislative proposals over the past year. These efforts are explicitly designed to boost EU industry, but they have also triggered intense lobbying from foreign countries concerned about being shut out of the lucrative European market. The current transatlantic trade landscape remains complex, marked by ongoing disagreements that trace back to the previous US administration, including tariff threats and disputes over environmental and digital regulations that the White House has frequently characterized as non-tariff barriers to trade.
Brussels had, until recently, harbored hopes that the conclusion of a trade agreement scheduled for July 2025 would pave the way for a more stable and predictable transatlantic relationship. However, the explicit warning from the US regarding the budget preferences introduces a fresh layer of complexity, indicating that fundamental disagreements over industrial policy and market access continue to challenge the economic alliance between the two major global trading blocs. The coming months will reveal whether the EU adjusts its budgetary plans in response to the US pressure, or if both sides brace for a new chapter of trade disputes.
