Euro zone posts unexpected trade deficit as US exports plunge

07:00

By: Dakir Madiha

Euro zone posts unexpected trade deficit as US exports plunge

The euro zone recorded a trade deficit of 1.9 billion euros in January 2026, sharply missing expectations for a surplus and highlighting mounting pressure from transatlantic trade tensions, according to Eurostat data released on March 20.

The deficit widened from 1.4 billion euros a year earlier, while analysts had forecast a surplus of 12.8 billion euros. The shortfall was driven largely by a steep drop in exports to the United States, which fell 27.8 percent year on year to 34.8 billion euros, marking the largest decline among the bloc’s major trading partners.

The European Union’s trade surplus with the United States nearly halved, dropping from 18.1 billion euros in January 2025 to 9.2 billion euros. Overall euro zone exports to the rest of the world reached 215.3 billion euros in January, down 7.6 percent from the previous year, while imports declined 7.3 percent to 217.2 billion euros.

The downturn affected all major sectors. Chemical exports saw the sharpest percentage decline, falling 23 percent year on year, with the sector’s trade surplus shrinking from 23 billion euros to 15.4 billion euros. Machinery and vehicle exports, traditionally key drivers of European trade, also weakened, with their surplus dropping from 8.4 billion euros to 1.8 billion euros.

Industrial output across the euro zone declined by 1.5 percent on a monthly basis in January. Production of capital goods fell by 2.3 percent, reflecting broader weakness in manufacturing activity.

The slowdown follows the Turnberry agreement reached between the European Union and the Trump administration in July 2025. The deal introduced US tariffs of 15 percent on most EU goods, while maintaining 50 percent duties on steel and aluminum. EU steel exports to the United States had already dropped 30 percent in the second half of 2025, according to the European Steel Association.

Despite these tariffs, bilateral goods trade between the United States and the European Union reached a record 1.05 trillion dollars in 2025, according to the American Chamber of Commerce to the EU, though the US goods deficit with the bloc narrowed only slightly.

Political uncertainty has added to the strain. On March 19, the European Parliament’s international trade committee approved legislation to remove EU tariffs on US industrial products, as required under the Turnberry agreement, but included conditions such as a sunset clause that would reinstate tariffs after 18 months if the deal is not renewed.

Final approval by the European Parliament may be delayed until April or May as negotiations with member states continue. The hesitation reflects lingering distrust after a US Supreme Court ruling in February declared the original 2025 tariffs illegal, followed by new investigations launched by the White House into European products.

The euro came under pressure following the release of the trade data, weakening against the dollar as markets reacted to concerns over the bloc’s export outlook.