The Fragile Unity of Europe at Risk from Trump’s Threats

Officials in Europe are working to secure support from member nations as they prepare for President Donald Trump to exploit their divisions to advance his “America First” agenda.

During a private meeting last week, the European Commission, the EU’s executive body, advised member states to stay united, drawing parallels to the Brexit negotiations, according to sources privy to the discussions. During that time, the UK attempted to weaken the bloc by pursuing bilateral agreements with individual countries.

Leaders such as Germany’s Olaf Scholz, France’s Emmanuel Macron, and Denmark’s Mette Frederiksen have been traveling across Europe since Trump’s inauguration to strategize on how to navigate the risks posed by the new administration in Washington.

This situation emerges during a particularly challenging time for the EU, which is grappling with a worsening economic downturn and political disunity that is hindering governance in its two largest nations, Germany and France. During the recent discussions with the commission, member states voiced fears that Trump might seek to exploit divisions within the EU through bilateral agreements or selective tariffs.

“During Brexit, Europe had the upper hand,” Alicia García-Herrero, a senior fellow at the Brussels-based economic think tank Bruegel, remarked in an interview. “But now, there’s no doubt that Europe will divide.”

The EU is moving swiftly, anticipating that a new wave of tariffs from the U.S. is unavoidable, and this round could be more damaging than the trade tensions ignited by Trump in 2018, according to those who spoke on the condition of anonymity. While officials are eager to explore all avenues for collaboration, they remain doubtful about their ability to persuade Trump to avoid a trade conflict that could ensnare everything from steel and automobiles to European tech regulations and tax policies.

Instead, the EU has prepared several lists of American goods that could be subject to retaliatory tariffs if Trump proceeds with his levies, evaluating different scenarios based on the nature of the initial U.S. measures, according to sources. This time, the EU has invested more effort in preparing its response and has broadened its list of potential targets.

Trump asserted on Monday that he would implement widespread tariffs that are “much larger” than the 2.5% rate, specifically targeting the steel and aluminum industries, both of which he had imposed duties on during his previous term.

At the World Economic Forum in Davos, Switzerland, last week, the U.S. president claimed that “the EU treats us very, very unfairly, very badly.” Europe has been further rattled by Trump’s assertion that he aims to acquire Greenland for security reasons, without ruling out military action.

“The EU needs to use this time to prepare, whether for dialogue or retaliation,” stated Arancha González Laya, dean of the Paris School of International Affairs at Sciences Po, in an interview. “We must maintain unity, because with the integration of the European economy, tariffs impacting one member state also affect the EU as a whole.”

What Bloomberg Economics says…

“The EU will seek to negotiate first, most likely presenting a unified front. However, there is limited capability to address these concerns.” — Jamie Rush, Antonio Barroso, and Eleonora Mavroeidi. For full research, click here

It is possible that Trump may impose tariffs immediately, although some in Europe believe they may not come until after April 1, when the new administration is scheduled to review actions addressing unfair and unbalanced trade and “recommend appropriate measures, including a global supplemental tariff or other policies” to resolve the issue. The EU has also been engaging in discussions with like-minded U.S. trading partners and sharing insights, according to sources.

The commission is also drafting a proposal to enhance bilateral relations with the U.S., which may encompass increased imports of liquefied natural gas, fertilizers, and weaponry, as indicated by one source. Other areas for potential collaboration include closer cooperation on China concerning export controls, investment screenings, and addressing China’s overcapacity issues, particularly in the steel sector, according to the individual.

“Our foremost priority will be to initiate early engagement, discuss shared interests, and prepare for negotiations,” Commission President Ursula von der Leyen stated in Davos last week. “We will approach matters pragmatically but remain steadfast in our principles. Protecting our interests and upholding our values – that’s the European approach.”

“What Europe will endeavor is negotiation; there isn’t another option,” García-Herrero of Bruegel stated. “I foresee a challenging path for Europe, and I do anticipate certain U.S. tariffs on Europe, but they will likely only apply to specific products.”

The timing is particularly challenging for the EU. Germany’s Scholz is facing a potential exit in snap elections scheduled for February 23, while in France, Macron is contending with being a lame-duck president, preoccupied with passing a budget while striving to keep the far-right leader Marine Le Pen out of power.

Populists within the EU have capitalized on these divisions. Last month, Hungarian Prime Minister Viktor Orban stirred tension within the bloc by suggesting he might not support the extension of the EU’s sanctions against Russia — a routine process that necessitates unanimous approval from all 27 member states. This compelled the EU to consider alternative solutions and offer incentives to Orban, which ultimately resulted in Hungary retracting its threat.

Former European Central Bank President Mario Draghi cautioned last year about a “slow agony” within the bloc if member states failed to act promptly to enhance the region’s productivity through increased investments. He asserted that neglecting this issue would undermine the EU’s competitiveness against the U.S. and China.

‘Existential’ issues

“The foundations we built upon are now being tested,” Draghi stated in a report presented to the EU. “This poses an existential threat.” Macron warned in more severe terms, asserting that “the EU could perish” if it maintains its “classical agenda.”

An analysis by Bloomberg Economics indicates that the bloc’s economic size would be approximately €3 trillion ($3.3 trillion) larger had it kept pace with the U.S. over the last 25 years since the monetary union was established — sufficient to elevate the income of an average worker by around €13,000 annually.

These circumstances suggest that while the EU professes to uphold unity in facing Trump’s threats, it may struggle to meet that challenge. Bloomberg Economics predicts that a 10% tariff could reduce exports to the U.S. by 30%, while a 25% tariff could result in a 70% plunge, putting between 0.7% and 1.5% of GDP at risk.

A significant juncture for the EU and U.S. may arise at the end of March when suspended EU tariffs on $3 billion worth of U.S. goods are scheduled to be reinstated. This conflict dates back to 2018, when the U.S. imposed duties on nearly $7 billion of European steel and aluminum exports, invoking national security concerns. The EU retaliated by targeting politically sensitive American firms, including Harley-Davidson Inc. motorcycles and Levi Strauss & Co. jeans.

The two parties reached a temporary ceasefire in 2021, during which the U.S. partially lifted its tariffs and implemented a set of tariff-rate quotas beyond which duties on metals are imposed, while the EU halted all its restrictive measures. The U.S. quotas replacing the punitive duties will expire by year-end.

‘Time bomb’

“If they allow that March deadline to pass and tariffs are reinstated, it would be disastrous,” remarked Daniel Mullaney, a senior fellow at the Atlantic Council who served as a senior U.S. trade negotiator during Trump’s first presidency. “That scenario is like a ticking time bomb.”

Ignacio Garcia Bercero, a non-resident fellow at the Bruegel think tank and former senior EU negotiator with the U.S., suggested the EU should extend the suspension while reiterating the commission’s readiness for a more structured discussion on this issue. “Implementing any measures before they do would be ill-advised,” he cautioned.

As of now, the EU has not determined its approach to that deadline, according to sources.

The regulation of technology is another potential area for conflict across the Atlantic, with Trump criticizing the EU for its actions against Apple Inc., Alphabet Inc.’s Google, and Meta Platforms Inc. The EU has established a formidable global reputation for its stringent regulations on major tech firms.

Tech giants Apple, Google, Meta, and the X platform owned by Trump ally Elon Musk could face billions in fines or even mandatory divestiture orders stemming from numerous ongoing EU investigations.

“They shouldn’t be doing that,” Trump remarked during the Davos conference. “In my view, that amounts to a form of taxation. We have significant grievances with the EU.”

Some officials predict that disputes over tech regulation and taxation could become even more intense than any tariff-related conflicts, as Trump approaches trade in a transactional manner. Determining a suitable resolution regarding tech regulations may prove far more complicated, they note.

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