The European Union has entirely failed to understand and deal with US President Donald Trump since his reelection. First, by failing to acknowledge how his second term differed from his first and refusing to accept that this meant that Europe needed to meet force with force—openly and visibly. Second, by failing to understand the moment and the extraordinary opportunity that lied with Trump confronting the whole world head-on all at once, which should have encouraged bold and coordinated action with countries such as China or Canada to isolate the United States and force it to back down.
The ex-post rationalization of the accommodating response it opted for instead is that it was designed to allow for negotiations and that it minimized economic pain for Europe. While true in strict economic terms, by avoiding to retaliate, the EU has chosen to trade short-term gains for long term pain.
Indeed, the EU’s inaction has led to a series of bilateral “deals” between the US and its partners that have left it isolated. The United Kingdom has essentially and unsurprisingly caved in entirely, setting a terrible benchmark of expectations for Brussels. And China has achieved a complete US capitulation, because it stood firm and used its leverage in critical areas. As a result, Beijing doesn’t really need Europe in order to corner the US any longer, it has instead proven the devastating effect of its control of the critical raw material supply chain globally.
More Pressure to Come
The result of this compromising strategy has not been dialogue and compromise but rather another round of tariffs on Europe. There is possibly yet more pressure to come as new National Security (Section 232) are still under way especially since Trump has been slowed down last week by the US Court of International Trade ruling challenging his wide-ranging imposition of “reciprocal” tariffs under legally questionable emergency Presidential authority. The EU is no secretly hoping that the Supreme Court of the United States will strike down US tariff and weaken the hand of President Trump in the negotiation, but this is terrible admission of weakness.
However, the reality is that Europe’s situation has also changed since Trump’s first term. In particular its despondency about the US when it comes to dealing with Russia’s war of aggression against Ukraine has been a remarkable source of weakness. The good news is that Europeans, starting with Germany, are now finally preparing a plan that could push European defense spending up to 5 percent of GDP and lead to a leap in European defense and political integration. But in the meantime, the EU felt it could not afford to upset the US without taking a major risk with its security and that of Ukraine.
With that in mind, the EU can still change tack but it needs to pull a complete U-turn on its economic policy strategy toward Trump.
First, it needs to implement immediately its steel and aluminum tariff response, and announce a set of scheduled retaliations for the automobile tariffs as well as for the so-called reciprocal tariffs potentially escalated now to 50 percent. This would mean at the very least a set of tariffs on US goods imports worth in excess of a €150 billion, when it has only fully approved (but suspended) a response to the steel and aluminum tariffs and is yet to fully vote on a response to the Auto and reciprocal tariffs.
Second, the EU should signal that it can restrict the export of critical goods through price and quantity measures for which the US has few substitution options including semi-conductor lithographic equipment. It should also announce that it will cease cooperation on export controls of critical technologies. This is certainly a “nuclear threat,” but it is the only way for the Europeans to recreate leverage. There is no American chips or semiconductor industry to speak of without European lithographic machines and know-how; this needs to be put on the table now for the US to take the EU more seriously.
Third, it should activate immediately its anti-coercion instrument and launch several investigations against the United States, in particular against its services exports given the large US trade surplus on services: (i) on financial services, (ii) on the provision of digital services, (iii) on public procurement, and (iv) on the foreign direct product rule that allows the US to impose extraterritorial export control restrictions on the EU. Member States are reluctant to put activate this instrument against for the first time and they are worried that it would hand over a very powerful instrument to the European Commission, but this is critical so that the EU can respond with actions beyond trade and tariffs. This activation could allow the EU to achieve an agreement over the summer to ban American financial services firms from collecting European savings; to impose broad digital services duties on all US digital services firms; to ban American firms from European public procurement; and, finally, to restore its full sovereignty over its export control rules. This would be an extreme response, but the US must understand that the EU can pull off a very harmful response if it so chooses.
This set of actions would show preparedness to act, willingness to defend the EU’s sovereignty, and mark a clear distance between the EU’s stance and the UK’s acceptance of very intrusive extra-territorial security rules imposed by the US in its latest bilateral trade agreement. This would undoubtedly make negotiations more challenging, but it would establish a clear deterrence posture. But importantly, by escalating now, it would facilitate a de-escalatory agreement down the line.
Fourth, the EU must credibly commit to standing firm on its core principles in defense of free speech, on online content moderation of digital platforms, and on the thorough implementation of all its legislative and regulatory measures, in particular related to the Digital Services Act and the Digital Markets Act. It must be clear to the US, that European social and democratic preferences whether they digital services regulation or phytosanitary requirements are non-negotiable.
A High Degree of Unity
The reality is that in order to achieve such a high-powered retaliation strategy and drive a hard bargain with the Trump administration, the EU needs a high degree of unity and the conviction that it has the means to withstand a longer and more intense economic war. A global recession must be made more costly to the US than to the EU member states, and this is entirely possible given our better collective fiscal standing.
This must start with strong and credible investments in Europe’s defense capabilities. But beyond defense, this would mean paving the way for strong domestic macro-economic stabilization capacity by way of a new common European recovery fund but also the rapid patching up of the EU’s weak spots such as the sovereignty over its payment system infrastructure, both commercial and retail, and its financial market and central bank clearing systems for which the digital euro is a great help. This trade negotiation is a formidable political and policy challenge for the EU but one that it must seize and that will eventually prove to be a powerful contribution to its economic and political integration.
Shahin Vallée is a senior research fellow at the German Council on Foreign Relation’s (DGAP) Geopolitics, Geoeconomics, and Technology Center.
