Europe Prepares to Seek Common Ground with Trump

Two key issues have emerged on the agenda for European leaders following Donald Trump’s victory in the US presidential election. These are: who will take responsibility for the security of the European continent, and how to respond to the incoming US president’s plans to impose extensive tariffs on imports. In truth, both issues were already on the table; however, their significance has now skyrocketed. Previously, the focus was predominantly on defending against aggressive, subsidised Chinese exports. Now, the concern has shifted to protecting the US from exports originating from the EU and the United Kingdom, which have led to a trade imbalance significantly favouring Europe. Unlike Chinese practices, however, there is no evidence of unfair government subsidies in Europe. During his first term, Trump had already demanded that Europe shoulder more of the financial burden for its security. The invasion of Ukraine has demonstrated the extent to which EU countries relied on the security umbrella provided by their transatlantic NATO ally. As a result, Europe is now frantically rebuilding its defence industries and military capabilities.The most intriguing aspect is that Trump is likely to merge these two issues into one major negotiation.

Competitiveness and security concern leaders on both sides of the Atlantic. In Germany, where the Bundestag election campaign has unofficially begun, Friedrich Merz, the leader of the right-wing opposition, has identified "restoring the international competitiveness of our economy" as one of his top three priorities.

10 or 20?

During his presidential campaign, Donald Trump strongly advocated for creating conditions to ensure "fair trade agreements (with regard to foreign manufacturers)." His campaign slogans often featured harsh figures, such as a proposed 60% tariff on aggressive exports of Chinese goods to the United States. However, this is not entirely surprising—for instance, the Biden administration in May raised tariffs on Chinese electric vehicles from 25% to 100%, and solar panels from 25% to 50%.

The key difference is that Trump appeared willing to impose tariffs on all Chinese goods. Furthermore, he included plans to introduce tariffs on European goods. This is a significant escalation, considering European manufacturers are not generally known to receive substantial subsidies from their governments. The specific levels of these proposed tariffs remain unclear, with figures ranging from 10% to 20%. Trump has repeatedly expressed dissatisfaction with the massive trade imbalance with Europe.

Is the situation serious enough to justify Trump’s frustration? It seems so, even when it comes to trade with the United States’ closest ally—the United Kingdom. The latest available data on trade in goods and services between the two countries for the 12 months ending 30 June reveals:

• The total export of goods and services from the UK to the United States amounted to £188.2 billion, a decrease of 0.4% compared to the same period ending 30 June 2023.
• The total import of goods and services from the United States to the UK was £116.1 billion, a decline of 3.5% compared to the same period the previous year.
• The trade surplus for the UK in its trade with the US was £72.1 billion over the 12 months ending 30 June 2024. This means UK exports to the US exceeded imports by 62.1%.
• Over the year, the trade surplus even grew—from £68.6 billion in the 12 months ending 30 June 2023 to £72.1 billion.

Keir Starmer might well be equally infuriated if the UK’s trade deficit with the US were as large but in America’s favour. If Trump introduces tariffs on British goods, it would significantly harm the UK economy, as trade with the US accounts for 17.6% of the UK’s total trade turnover.

Photo: Over the past 10 years, the EU has consistently increased the trade surplus between its exports to the US and imports from the US. Source: ec.europa.eu/eurostat

A similar situation exists with the EU, as last year’s data indicates:

• In 2023, the EU exported goods (excluding services) worth €502 billion to the US.
• During the same period, the EU imported goods worth €344 billion from the US.
• This resulted in a trade surplus of €158 billion in favour of the EU, with approximately half attributed to Germany.

This surplus is particularly noteworthy given the current fragile state of the German economy—it is the only major European economy experiencing negative GDP changes this year. Over the past decade, the EU’s trade surplus with the US in goods has grown substantially, from €81 billion in 2013 to €166 billion in 2021, though it slightly decreased in 2023. Additionally, the composition of US imports to the EU appears somewhat unbalanced: among the top three product categories, only one—medical materials and pharmaceuticals—represents high-value-added goods. The other two are oil and liquefied natural gas.

If stringent tariffs are imposed on goods from the EU and the UK, both will suffer significant economic impacts.

According to the Centre for Inclusive Trade Policy (CITP) at the University of Sussex, if Trump implements a 20% tariff on imports from all countries and a 60% tariff on goods from China, it could lead to a total decline in British exports of £22 billion (more than 2.6%). This would, in turn, cause the UK’s GDP to shrink by 0.8%. These losses would stem not only from reduced direct exports to the US but also from a decline in economic activity in other countries unable to purchase British goods at previous levels.

The EU would also face a severe economic slowdown due to such tariffs. Export-heavy nations, particularly Germany, would be the most affected. The German Council of Economic Experts, an advisory body to the federal government, downgraded its economic forecast on 13 November. For 2024, the council now predicts a 0.1% contraction in Germany’s GDP, compared to its earlier projection of a modest 0.2% growth.

Meanwhile, higher import tariffs would have adverse effects on the US as well. Inflation is likely to accelerate, with estimates suggesting that consumer prices could rise by 2-3% almost immediately. Such outcomes would contradict the promises of Republican policymakers, who campaigned on pledges to curb inflation.

Photo: NATO Secretary General Mark Rutte (left) is reshaping the Alliance to enable the Euro-Atlantic community to counter the global "axis of evil." He relies on Emmanuel Macron (right). Source: NATO

"More Investments in Defence"

Mark Rutte, NATO Secretary General, during his visit to France on 12 November:

“Every day, Ukrainians are killed and injured by deadly Shahed drones, developed and supplied by Iran. With the funds obtained from selling weapons to Russia, Iran and its proxies are destabilising the Middle East and financing terrorism beyond its borders.

At the same time, China is supporting Russia’s economy, advancing its defence industry, and amplifying its narrative on the global stage.

By collaborating with North Korea, Iran, and China, Russia poses a threat not only to Europe but also to peace and security in other regions, including the Indo-Pacific and North America.

Therefore, we must unite—Europe, North America, and our global partners—to ensure the safety and prosperity of our people.

In doing so, we must uphold the resilience of our transatlantic Alliance. The immediate challenge we face is supporting Ukraine.”

A War on the Doorstep

Economic losses from tariff wars will be particularly acute against the backdrop of the challenges Europe faces due to Russia’s war against Ukraine, the aggressive export of Chinese goods subsidised by the Chinese government, and the lingering effects of the economic crisis caused by the COVID-19 pandemic. Russia’s aggressive war on Europe’s doorstep is not mentioned here solely for its impact on supply chains for raw materials, oil, and gas. The Russian threat has escalated significantly, compelling Europeans to increase defence budgets—an unequivocal burden on their economies.

For instance, German Chancellor Olaf Scholz recently admitted during debates in the Bundestag that increasing defence expenditure—while absolutely unavoidable—threatens social programmes. However, it appears that Scholz may not have the final say, as his “traffic light” coalition government is likely to lose power soon.

It seems increasingly logical that while harsh tariffs will be imposed on China, alternative proposals will be extended to Europe by Washington. What might these proposals entail? For example, European governments purchasing arms from American manufacturers. This solution offers a win-win scenario: it helps balance external trade, supplies European armies with weaponry that European defence companies cannot currently produce quickly enough, and addresses security concerns. Still, achieving this will not be easy, as evidenced by Donald Trump’s tough negotiation style during his first presidential term eight years ago.

Washington is vigorously urging its European allies not only to meet the NATO target of 2% of GDP for defence spending but to go even further. The US allocates 3.4% of GDP to defence, Poland 4%, the UK 2.3%, France 2.1%, and Germany just 1.5%. Baltic states are even proposing to raise the NATO target to at least 2.5%.

However, Europe is not simply waiting for fate to intervene. Over the past week, several high-level meetings have taken place. British Prime Minister Keir Starmer met French President Emmanuel Macron on Armistice Day, a highly significant occasion in France, commemorating the First World War. While Britain is no longer part of the EU, London is strengthening ties with Paris, which has started to play an informal leadership role in the EU amid Berlin’s governmental crisis.

Two days after his meeting with Starmer, Macron spoke at the prestigious Collège de France alongside former European Central Bank President and former Italian Prime Minister Mario Draghi. They called on the EU to focus on mitigating the potentially disastrous consequences of a trade war between the US and China. Draghi’s inclusion was strategic; he recently prepared a study on competitiveness, which intriguingly advocated for the expansion of Europe’s own arms manufacturing capabilities.

Before this joint appearance with Draghi, Macron hosted NATO Secretary General Mark Rutte in Paris. Their discussions included a joint briefing and, notably, a visit to the defence corporation Thales, where Rutte emphasised: "More investments in defence." This statement may well serve as Europe’s guiding principle for the years ahead. Rutte also reaffirmed NATO’s strengthened commitment to its eastern flank with visits to Latvia and Poland last week.

Severe challenges, such as a global trade war and a real, hot war in Eastern Europe, present two potential paths: either the European community begins to fracture, or it emerges from these tough times united and self-sufficient. The latter outcome is increasingly appearing as the more realistic scenario.