BRUSSELS: After satisfying Donald Trump's calls for Europe to ramp up defence spending in NATO, European Union leaders were meeting in Brussels on Thursday (Jun 26) on the next big challenge ahead: how to seal a trade deal with the United States leader.

Time is running out. The EU has until Jul 9 to reach a deal or see swingeing tariffs kick in on a majority of goods, unleashing economic pain.

The European Commission, in charge of EU trade policy, has been in talks with Washington for weeks, and will update leaders on the state of play at Thursday's summit.

The leader of the bloc's biggest economy, German Chancellor Friedrich Merz, set the tone upon arrival.

"I support the commission in all its efforts to reach a trade agreement quickly," said Merz, signalling he wants negotiators to close a deal as soon as possible - even if it means an unbalanced outcome with the Europeans agreeing to some level of US tariffs.

The EU has put a 0 per cent tariff proposal on the table - but it is widely seen as a non-starter in talks with Washington.

According to several diplomats, the goal at this point is rather to let Trump claim victory without agreeing to a deal that would significantly hurt Europe.

One diplomat suggested leaders would be happy with a "Swiss cheese" agreement - with a general US levy on European imports, but enough loopholes to shield key sectors such as steel, automobiles, pharmaceuticals and aeronautics.

This would be less painful than the status quo, with European companies currently facing 25 per cent tariffs on steel, aluminium and auto goods exported to the US, and 10 per cent on a majority of EU products.

Merz on Monday hit out at the EU's approach to talks with Washington as "too complicated", urging "rapid, joint decisions for four or five major industries now".

The issue will be discussed over a summit dinner on Thursday, with European Commission President Ursula von der Leyen planning to test leaders' red lines in negotiations.

If no agreement is reached, the default tariff on EU imports is expected to double to 20 per cent or even higher - Trump having at one point threatened 50 per cent.

KEEPING CALM

Unlike Canada or China, which hit back swiftly at Trump's tariff hikes, the EU has consistently sought to negotiate with the US leader - threatening retaliation only if no agreement is reached.

"We will not allow ourselves to be provoked, we will remain calm," said Belgian Prime Minister Bart De Wever, urging the EU to avert an all-out trade war with Washington.

"We are negotiating and we hope to reach an agreement", but "if this is not the case, we will obviously adopt countermeasures", he warned.

Speaking at NATO's summit in The Hague on Wednesday, French President Emmanuel Macron said a trade war among alliance partners "makes no sense" at a time when they are pledging to spend more on their common defence.

"We can't say to each other, among allies, we need to spend more ... and wage trade war against one another," Macron said.

Talks between EU and US negotiators have intensified in recent weeks.

"The problem is that on behalf of the US, we have a heavyweight dealmaker - on our side, EU, have light capacity and capability leaders to negotiate," said Hungarian Prime Minister Viktor Orban.

Trump divides the Europeans. Orban and Italian Prime Minister Giorgia Meloni are both vocally supportive of Trump - while others are more wary.

Meloni on Wednesday declared herself "quite optimistic" about reaching a deal and echoed Macron, albeit in a softer manner, saying spending more on defence among NATO allies went hand in hand with avoiding trade spats.

Pro-trade countries in Europe's north are especially keen to avoid an escalation.

The EU has threatened to slap tariffs on US goods worth around €100 billion, including cars and planes, if talks fail to yield an agreement - but has not made any mention of those threats since May.

The US is also using the negotiations to try to extract concessions on EU rules, particularly digital competition, content and AI regulations, which Washington claims unfairly target American champions such as Apple, Google and Meta.

Europeans are ready to discuss common transatlantic standards, but the EU's digital rules are a red line for Brussels.

"The sovereignty of the decision-making process in the EU" is "absolutely untouchable", von der Leyen said on Monday.