After COVID-19 and Russia’s invasion of Ukraine, is Europe about to get its next existential shock in the shape of US president-elect Donald Trump? From trade to defense to technology, the combination of mercantilism and “Make America Great Again” (MAGA) is going to hurt — but hopefully also jolt Europeans out of typical complacency.
The list of reasons for the EU to worry is long. The open, trade-oriented 27-member union thrives in predictable, rules-based environments that put commerce first and conflict second. That is butter for the Trumpian knife, with the incoming president preferring to move fast, apply pressure and transact bilaterally.
Even before getting his feet under the Oval Office desk, he is leaning on Ukrainian President Volodymyr Zelenskiy to cut a deal with Russian President Vladimir Putin to end the Russian invasion, while threatening allies with a blanket 10 percent tariff to redress deeply held grievances on trade.
The combined effect would be a new security dilemma to Europe’s east, with EU defense nowhere near ready to pick up the slack of a US pivot to Asia, and a reduction of EU GDP by 0.3 percent by 2026 if tariffs happen, according to Citigroup Inc.
The unity keeping Europe together is also getting weaker. Unlike Trump’s first term, which produced that remarkable image of then-German chancellor Angela Merkel and assorted G7 partners staring down a defiant US president, the list of leaders able to rally support in the face of a fraying trans-Atlantic relationship is Post-it-sized.
French President Emmanuel Macron has gone from walking on water to getting drenched — and might not see out his second term. Merkel’s successor, German Chancellor Olaf Scholz, is even more unpopular and faces elections in February. Europe’s far right is gaining and getting an unexpected boost from Elon Musk’s wealth and influence.
Still, even if a coterie of Trump whisperers such as Italian Prime Minister Giorgia Meloni and Hungarian Prime Minister Viktor Orban sees their influence rise, everyone’s playing with a weak hand.
Investors already concerned by the EU’s economic and tech lag relative to the US (and China) are voting with their wallets.
It is just about possible to glimpse a silver lining, or the contours of a response taking shape, amid the gloom. At a recent gathering of ministers and experts in the Italian Alps organized by Grand Continent, the pragmatism of euro elites assessing the EU’s ability to plan and respond rather than simply calling for more utopian Hamilton moments was encouraging.
Trade, one area where the size of the EU market and its 440 million consumers gives the Brussels machine genuine sway, has seen war-gaming begin in earnest. This means identifying carrots to pre-emptively offer Trump to rebalance a US$201.6 billion EU-US surplus — such as buying more energy, goods, weapons — and retaliatory tariff sticks if they do not work.
That would not be easy, given the scale of what Trump calls a “tremendous deficit,” but it is doable. The next goal should be the kind of mindset shift that can hold a common pan-EU line if Trump opts to divide and rule by offering concessions to individual countries.
On security, a truly defense-ready Europe still looks a distant prospect even after the biggest full-scale conflict on home soil since 1945. Yet here again, the size of its market might give it a voice at the table when it comes to Ukraine’s fate. It should seize the initiative to play a leading role in the country’s reconstruction, which could cost up to US$486 billion over the next decade.
On top of meeting existing pledges of 241 billion euros (US$250.82 billion), Europe also has a card to play in the form of about US$300 billion sanctioned Russian sovereign assets, which have been used creatively to help Kyiv without full confiscation.
Looking for closer ties with the UK, a logical defense partner for the EU despite the bad blood of Brexit, should also bring a boost as British Prime Minister Keir Starmer seeks support against Trump’s tech-industrial-tariff complex. The image of Musk at Mar-a-Lago with Nigel Farage and Nick Candy of the Reform party, which Musk might bankroll, must not become the new definition of the “special relationship.”
Finally, the European economy, if it can escape terminal decline, might also serve as the thread between what Europe needs and what Trump wants: a more autonomous and resilient continent that is driven by its own consumers rather than exports to China or imports of Russian gas. Although it has taken hits from its lack of technology giants and from a still-fragmented capital market, this is a market with household savings equivalent to 33.5 trillion euros and with strong companies from ASML Holding NV to Airbus SE.
A stack of recent recommendations from former Italian prime ministers Mario Draghi and Enrico Letta shows the way to unpicking red tape, knocking down silos and bulking up companies in fragmented sectors such as telecoms. Interest-rate cuts from the European Central Bank can also drive demand, and repair battered corporate and consumer confidence. Maybe some of the elements of MAGA, from de-bureaucratization to countering China’s unfair trade practices, might be emulated in Europe.
Grabbing these opportunities would depend on the political instability at Europe’s core not worsening. There is at least one reason to be optimistic: The current frontrunner to succeed Scholz — Friedrich Merz — might be the key to unlocking approximately 0.7 percent of GDP in extra spending by reforming the much-maligned debt brake, according to UBS, which would brighten prospects. Still, caution is warranted given what is going on in France.
Maybe the best thing to be said about next year for Europe is that expectations could hardly be lower. While it is Trump’s own mood and the health of the US consumer that would decide most of how his blows land, Europeans should not forget their own (limited) ability to parry.
Lionel Laurent is a Bloomberg Opinion columnist writing about the future of money and the future of Europe. Previously, he was a reporter for Reuters and Forbes. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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