Is free trade making a comeback? European Union (EU) member states voted on Friday to approve a trade deal with South America’s Mercosur trade bloc, which will create one of the world’s largest free trade areas when the two sides formally sign the agreement in the coming days. The deal—which has been under negotiation since 1999—passed over objections from several member states, including France, that raised concerns over how lowering trade barriers with Mercosur nations will affect domestic agriculture.
What impact will this deal have on European competitiveness and South American export markets? And what details remain to be ironed out as the deal moves onto the European Parliament for final approval? Our experts provide their insights into this decades-in-the-making trade pact below.
1. Why is the EU-Mercosur deal happening now?
Those European farmers and others opposed to the EU-Mercosur deal can blame US President Donald Trump for the conclusion of this significant free trade agreement. Negotiations between the EU and Mercosur were essentially on hold after the basic agreement, finalized in 2019, was met with serious opposition by key EU member states. During 2024 and 2025, the European Commission and Mercosur negotiated an “additional instrument” with protections on labor, human rights, and environmental issues. With Trump’s tariffs in effect by summer 2025, pressure mounted for the EU to diversify its trading partners. Last year, the EU finalized a new trade agreement with Indonesia and updated an existing agreement with Mexico. The bloc also made significant progress on an EU-India trade deal.
Nevertheless, the Mercosur deal still faced near-fatal opposition until it received two final pushes: First, the European Commission proposed safeguards to protect agricultural interests from import surges. Second, the new US National Security Strategy made clear for the EU that trade relations with Latin America were a geopolitical imperative. Nevertheless, Italian Prime Minister Giorgia Meloni refused to provide her country’s needed vote until the European Commission promised additional agricultural support in the next EU budget. With Italy’s support today—and in the wake of a US operation in Venezuela that left Europe on edge about Greenland—the EU-Mercosur agreement finally made it over the finish line.
—Frances Burwell is a distinguished fellow at the Atlantic Council’s Europe Center.
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The EU–Mercosur trade deal comes at a moment of growing pressure to diversify export markets and trade partners amid heightened geopolitical uncertainty, particularly in light of US tensions with China and the imposition of US tariffs. For Mercosur, this urgency has been especially acute for Brazil, the bloc’s largest economy, which has faced an additional 40 percent US tariff on top of baseline duties and whose number one trading partner is China.
—Valentina Sader is a director at the Atlantic Council’s Adrienne Arsht Latin America Center, where she leads the Center’s work on Brazil, gender equality and diversity, and manages the Center’s Advisory Council.
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The European Commission has sought to expand the EU’s network of trade relations to compensate for pressures from US tariffs, aggressive challenges from China, and the need to secure access to critical materials. Whether that diversification strategy is credible hinged in no small part on this trade deal—not just on the substance of market access and comparative advantages but also on the geopolitical feasibility of such a major agreement. The shifts in US trade policy under Trump, the challenges to the global trading system that Europe’s export-oriented economies depend on, and the demonstration of China’s stranglehold on critical resources clearly accelerated the decadeslong negotiations between the EU and Mercosur, which first opened in 1999 and were only finalized in 2024.
Last-minute additions were made by the EU in 2025 to provide more protections for European farmers. European Commission President Ursula von der Leyen hoped to sign the deal in Brasília in December 2025 after the initial safeguards were agreed upon in September, but Italy threw an unexpected wrench in those plans until further guarantees were made to protect domestic producers. Dramatic protests by farmers in Brussels in December solidified the momentum against signing the deal before Christmas.
On Wednesday, the safeguards Italy wanted were agreed upon by the EU’s agricultural minister and Rome lifted its veto. This paved the way for the European Council to vote in favor of the deal today by qualified majority—despite France voting against it, amid fresh farmer protests in Paris and increased political pressure on French President Emmanuel Macron—and for von der Leyen to officially sign the deal with Mercosur leaders in Paraguay as soon as January 12.
—Jörn Fleck is the senior director of the Atlantic Council’s Europe Center.
2. What impact will this have on Europe?
Europe worked hard to reach consensus on how to assuage doubts from European farmers about any negative impacts on their livelihoods. The additional measures added to the deal include “safeguards” for sensitive agricultural sectors, such as poultry, beef, eggs, citrus, and sugar, which would “suspend tariff preferences” in the case of “serious injury” to EU farmers. Serious injury is defined as an increase in import volume or a decrease in prices by more than 8 percent compared to the three-year average. The European Commission also introduced a slew of regular monitoring instruments, which will have to report to the European Council and European Parliament for increased accountability on enforcement. The Commission will be able to suspend imports from Mercosur in sensitive sectors if it deems this to be necessary. The final concessions agreed this week to bring Italy on board also include a revision to the 2028-2034 EU budget to allow farmers early access to roughly €45 billion in subsidies, as well as lowering import duties on fertilizers, the unaffordability of which was a major sticking point for protesters.
Economically, the agreement will remove approximately four billion euros worth of tariffs between the two trading blocs, which is significant for several key EU sectors that were previously subject to high tariffs when exporting to Mercosur. European exporters will no longer face 35 percent tariffs on car parts, 28 percent tariffs on dairy, and 27 percent tariffs on wine. The Commission estimates that the agreement could increase EU exports to Mercosur by 39 percent each year and support more than 440,000 jobs in Europe. However, not everyone shares this rosy assessment. Macron, in his announcement that France would not support the deal, stated that the economic gains would be minimal and that the agreement is “from another age.”
—Jörn Fleck
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Despite the very visible and sometimes violent protests by European farmers, the Mercosur pact is likely to make a positive contribution to the European economy. The agreement removes most Mercosur tariffs for industrial goods (currently set at rates ranging from 15-35 percent), opening the market for European machine tools, cars, pharmaceuticals, and other products. Mercosur tariffs on most food and agriculture products (ranging from 20-35 percent) will also be removed.
While EU farmers have expressed concerns about Mercosur agricultural products, especially meat, flooding the EU market, that is very unlikely in reality. The agreement includes limited tariff-free quotas for Mercosur products, and once those quotas are reached, current tariffs are reimposed. For beef, the quota allows in only an additional 1.5 percent of total EU production, and for poultry, only 1.3 percent. Moreover, if there are sudden, sharp rises in imports, the EU can impose measures to limit them. Despite the rhetoric, agriculture remains a well-protected sector under the EU-Mercosur accord. And for European industry, this agreement opens an important new market.
—Frances Burwell
3. What impact will this have on South America?
Covering countries with a combined population of more than 700 million people, the trade deal promises to expand South American access to the European market, boosting exports and attracting greater EU investment. At the same time, it will pressure Mercosur industries to modernize, digitize, and improve efficiency to remain competitive amid increased exposure to European manufactured goods.
Politically, the deal strengthens Mercosur’s credibility and cohesion at a moment of internal fragmentation, signaling that the bloc remains a viable platform for collective trade policy and diplomacy despite ideological differences among its members. As the bloc turns thirty-five this year, it is reasserting its strategic purpose, having finalized a deal with the European Free Trade Association, restarted negotiations with Canada, and now locked in a landmark agreement with the European Union.
—Valentina Sader
4. What should the US take away from this?
The Trump administration is unlikely to provide any public support for this agreement, but it is also unlikely to make it a significant issue in the US-EU relationship, despite its current emphasis on Latin America as its sphere of influence. This is a serious underappreciation of the importance of this accord. The EU will now have free-trade agreements with close to eighty countries, while the United States has free trade agreements with only twenty. While Trump has signed additional “deals” with many countries, they have generally raised trade barriers, rather than opening markets, and US demands for inward investment and other conditions have left many trading partners bruised and resentful.
The EU is certainly a tough negotiator, and the Mercosur accord will make some constituencies on both sides unhappy, but it is likely to raise trade levels between two significant economic blocs. The reduction in high Mercosur tariffs for EU goods will mean more exports for European industries, luxury goods, and other products. EU companies will be able to bid on public tenders in Mercosur countries on an equal basis with local firms. The agreement also safeguards the branding of more than three hundred traditional EU food products, such as champagne and parmesan cheese, meaning that US products with those same names must be rebranded to enter the Mercosur market. This is not only an economic loss for the United States, but a geopolitical one as well. EU and Mercosur businesses will generate more partnerships, and these growing economic ties are likely to lead to more political alignment at a time when many in the Southern Hemisphere are balancing their interests between China and the United States.
For Mercosur leaders and their citizens, the contrast could not be starker: In the same week that the United States conducted a military operation against a neighbor, the EU has finally agreed to a significant trade pact based on the rule of law.
—Frances Burwell
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As the EU and Mercosur double down on a multilateral, rules-based free trade geopolitical reality, the United States appears to be moving in the opposite direction. Given the current geopolitical context and in the wake of a new US National Security Strategy that places the Western Hemisphere at the center of US foreign policy, this deal is an opportunity for Mercosur member countries to reduce their economic reliance on the United States.
—Valentina Sader
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On a symbolic level, and perhaps most importantly, the deal demonstrates Europe’s willingness to adapt to an increasingly volatile global economy, the headwinds from US tariffs, and a new China challenge in critical sectors. For those in Brussels who call for the EU to stand more on its own footing economically, this is a strategic win. Moreover, if EU leaders had once again failed to reach internal consensus on the deal, it could very well have closed the door to any future deal with Mercosur and proven correct Washington’s doubts about Europe’s ability to act decisively on the world stage.
—Jörn Fleck
