The agreement between the European Union and four Mercosur countries — Argentina, Brazil, Paraguay and Uruguay — has been presented by the European Commission as a geopolitical win for those seeking to resist global fragmentation and the weaponization of trade. But this narrative overlooks a central contradiction: the proliferation of bilateral free trade agreements is itself part of the fragmentation trend, even when tariffs are lowered rather than raised.
In fact, such trade deals not only bypass multilateral institutions, but also separate trade policy from the macroeconomic and environmental conditions needed to sustain global growth and stability, including effective demand, income distribution, farm viability and fiscal resources.
This article is part of the The Parliament's special policy report "The EU's trade question."
Hidden traps
Trade agreements are often assessed from the standpoint of individual countries seeking export gains, but this perspective risks overlooking the broader industrial, social and environmental context.
Moreover, while one state may seek persistent export surpluses, all countries cannot do so simultaneously, and the underperforming economies will either drain their demand for trading partners' exports or accumulate unsustainable debt.
Trade liberalization between structurally different economies has also contributed to a race to the bottom in wage shares, weakening consumption demand, discouraging investment and slowing growth.
Resistance to trade liberalization reflects tangible economic pressures, not simply political rhetoric.
By contrast, the optimistic narrative surrounding the EU-Mercosur agreement rests on surprisingly fragile foundations. The analysis published by the Commission projects that removing tariffs would increase EU gross domestic product by €77.6 billion and Mercosur GDP by €9.4 billion — equivalent to 0.05% and 0.25%, respectively, by 2040.
But these modest long-term gains rely on assumptions that downplay fiscal constraints, inequality and the effects of declining labor income shares.
Worse still, the agreement's limited gains are treated as additional benefits on top of those expected from a growing number of similar bilateral deals, while ignoring possible reactions from countries excluded from them.
Taking the Commission's own projections as a starting point, our report estimates that Mercosur economies could experience a net growth slowdown of around 0.1% compared with a no-deal scenario, rather than the projected 0.25% GDP increase, reflecting the combined effects of lost tariff revenue, spending cuts and weaker domestic demand.
For the EU, the marginal projected gains disappear once the effects of declining labor income shares are taken into account. The agreement could shift up to €60 billion from wages to corporate profits in the EU each year once fully implemented, with further effects weakening consumption and investment over time.
Moreover, increased competition is likely to intensify market concentration and place further pressure on small producers and workers, particularly in vulnerable agricultural sectors such as beef farming. Based on the latest EU farm survey, published in 2023, a 2% fall in the prices farmers receive for their products could leave another 4% of farms financially unviable.
A different approach
What appears particularly costly is the missed opportunity to build a genuinely different framework for trade relations, aligned with goals both regions claim to share: climate sustainability, social cohesion, resilient domestic markets and macroeconomic stability.
In the current context of price volatility and political tensions, relying once again on trade liberalization instead of coordinated industrial, fiscal and development strategies risks deepening the fragilities policymakers increasingly acknowledge.
By contrast, genuinely reciprocal trade arrangements could include mechanisms for price management and limit financial speculation in commodity markets, while protecting local production, employment and environmental sustainability.
On these questions, the European Parliament has often appeared more cautious and attentive. Yet the technical assessment of trade agreements remains largely in the Commission's hands.
Given that trade policy is an exclusive EU competence, Parliament should strengthen its independent analytical capacity and promote a broader, more pluralistic approach to evaluating trade policy choices.
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