As Europe waits for US President Donald Trump’s tariffs, the European Union does not necessarily need to lie down and take it.
Some say that Donald Trump only cares about the optics; that he would accept any deal as long as it makes him look good. If one accepts that idea, it’s essentially an argument for continuing to underestimate him — and that has not worked so well in the past. In particular it would be a foolish misjudgement to equate America’s relationship with Mexico and Canada to that with the EU, and to extrapolate.
Here is how Europe could respond more effectively than through straight-forward retaliation. The most aggressive, and potentially also the most effective response, would be for the EU to revive Angela Merkel’s and Emmanuel Macron’s China Investment Agreement from five years ago, and to reaffirm the strategic partnership between the EU and China. That would probably create a bit of noise on the other side of the Atlantic, and would almost surely be accompanied by further threats. Should Trump choose to escalate, we should probably help ASML find business opportunities in China, maybe as a quid pro quo for Huawei helping us with our lagging 5G infrastructure. A co-operation agreement could extend to AI, an area that Europe has sadly neglected.
A less belligerent, but quite effective, response in the long run would be to fill the voids left open by the unwinding of some of the USAID programmes. To the extent that the US withdraws from international organisations, the EU could step up its involvement to form new strategic partnerships, especially in Africa and Latin America.
Internally, the most important response should be to address the deep causes of our dependency on the US, like our reliance on the US military for our security. Maybe we should switch from producing cars at scale to producing tanks and military aircraft. We should seek efficiency gains through reductions in the number of weapons systems and pooling of defence purchases, with a buy-European mandate.
Our commercial trade surpluses with the US reflect imbalances of domestic savings over investments. The capital markets union is the proverbial number ten bullet point on any EU politicians to-do-list. Put it right at the top, above Ukraine, above the Green Deal, because without it, there will not be enough money to go around for anything.
Deregulate the European tech sector, but maintain the current intrusive regime for imported tech services, to give global tech companies incentives to comply with European laws. Switch from data protection to data security. The overall point is that there is a menu of effective responses, but they all require unity, and a bit of gumption.
The worst thing — which is unfortunately what I expect to happen — would be a tit-for-tat trade war. The EU cannot win it. Do not repeat the mistakes by the Brexit doomsayers, who predicted that the UK would end in a massive black hole. It is the surplus countries that have more to lose from a trade war.
One of the lessons from history’s great military strategists is not to engage in your opponent’s war, but conduct your own. Don’t fall for Trump’s provocations. If the tariffs are wrong for the US, as I believe they are, they are wrong for Europe too. We need to play our own game.
This is an edited version of an article which originally appeared in the Eurointelligence newsletter.
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