Europe braces for Trump 2.0 as trade and defence tensions escalate

Donald Trump has not yet been inaugurated for his second term, but the reverberations across Europe are already impossible to ignore. From Berlin to Paris, London to Brussels, the continent's capitals are gaming out scenarios that range from uncomfortable to existential. The numbers alone explain the anxiety: the European Union ran a €15.4 billion goods surplus with the United States in January 2022, according to Eurostat, and Trump has promised blanket tariffs of 10 to 20 per cent on all foreign imports, with higher rates for cars. For Germany, where the economy shrank by 0.2 per cent in 2024 and the automotive sector accounts for a disproportionate share of exports, the arithmetic is brutal.

A transactional approach that treats allies as counterparties

Angela Merkel, who dealt with Trump during his first presidency, put it bluntly: "He simply doesn't believe in win-win partnerships." She concluded that he views the world through a prism of winners and losers, convinced that Europe has been taking advantage of the United States for years. That worldview explains why Trump has spent the weeks since his November victory lambasting European allies and Canada rather than focusing on China, which he identifies as the primary strategic threat. It also explains why he has dangled the possibility of abandoning NATO, telling a rally he would "encourage" Russia to do "whatever the hell they want" with European allies that "don't pay" more for defence.

Ian Bond, deputy director of the Centre for European Reform, believes Germany will remain "top of Trump's (European) hit list" regardless of who wins the snap election scheduled for February. He recalls Trump's past complaint that he does not want to see any Mercedes-Benz on the streets of New York, a remark Bond calls "kind of nuts" because most Mercedes sold in the US are built in Alabama. The hostility, Bond argues, is structural: Trump sees Germany's export model as a personal affront.

Trade war spillover would hit Britain despite its smaller deficit

The United Kingdom hopes to avoid the tariff crossfire because its goods trade with the US is roughly balanced. But British officials privately acknowledge that a full-blown EU-US trade war would generate tail winds no one can control. Supply chains are integrated across the Channel; financial services, which dominate UK-US commerce, could face regulatory retaliation; and the political pressure to align with either Washington or Brussels would be intense. The Bank of England has already modelled scenarios in which a 10 per cent global tariff shock reduces UK GDP by 0.5 percentage points over two years.

Defence and trade are now a single lever

What makes this moment different from 2017 is the explicit linkage of security and commerce. Trump refused to rule out economic or military action against Denmark, a NATO and EU member, if it does not hand over Greenland. His incoming vice president, JD Vance, suggested US defence guarantees for Europe could be conditional on the European Commission dropping its investigation into X, the social platform owned by Elon Musk. Musk himself has intervened directly in European politics, attacking Keir Starmer and Olaf Scholz while endorsing Germany's far-right AfD. Pollsters say the posts have little measurable impact on voters, but the precedent is unsettling: a US president-elect's closest adviser using his own platform to boost a party that German intelligence monitors for extremism.

A new poll commissioned by the European Council on Foreign Relations confirms the depth of the trust deficit. Trump and Musk are widely distrusted across the EU, with majorities in every member state expressing negative views of both men. The survey, conducted after the US election, found that only 18 per cent of Europeans believe Trump will have a positive impact on transatlantic relations.

Three European strategies, none guaranteed to work

European leaders are pursuing three distinct playbooks. Emmanuel Macron, the practitioner-in-chief of personal diplomacy, was among the first to congratulate Trump and invited him to the reopening of Notre Dame. During Trump's first term, Macron wooed him with the Bastille Day parade, calculating that flattery buys access. The approach yielded some tactical wins, Trump stayed in the Iran nuclear deal longer than he wanted, and France secured exemptions on steel tariffs, but it did not prevent the broader deterioration.

Christine Lagarde, president of the European Central Bank, has advocated a "cheque-book strategy": negotiate, buy American, avoid retaliation. Ursula von der Leyen has operationalised that advice, proposing increased purchases of US liquefied natural gas, already flowing at record volumes since Russia's invasion of Ukraine, alongside agricultural products and weapons systems. The logic is simple: reduce the bilateral surplus that obsesses Trump, and create dependency in the opposite direction. Critics warn it rewards coercion and undermines the rules-based trade order the EU claims to defend.

Macron's longer-term answer is "strategic autonomy", a phrase that irritates Washington but resonates in Paris and Berlin. "Europe... can die and that depends entirely on our choices," he said in spring 2024. Covid exposed dependence on Chinese pharmaceuticals; Ukraine exposed dependence on Russian energy; Trump 2.0 now exposes dependence on US security guarantees and market access. Macron argues the US has two priorities, America first, China second, and Europe is not a geopolitical priority for the coming decades.

Defence spending rises, but fragmentation persists

On defence, Trump's demand that Europe spend more is broadly accepted. The debate is over how. NATO's 2 per cent of GDP target is now met by 23 of 32 allies, up from six in 2014. But Macron wants an EU-wide industrial defence policy, arguing that the war in Ukraine revealed absurd fragmentation: "Our guns were not of the same calibre, that our missiles did not match." Kaja Kallas, the EU's foreign policy chief and former Estonian prime minister, insists that unity of purpose is the prerequisite for credibility: "We need to act in a united way. Then, we are strong. Then, we are also serious on the world stage."

Next month, EU leaders have invited the United Kingdom, one of Europe's two significant military powers alongside France, to an informal summit on security and defence. It will be the first such meeting since Brexit and a test of whether the "reset" in UK-EU relations announced by Starmer's government can translate into operational cooperation. British officials want a defence and security pact by spring; EU diplomats caution that the UK's refusal to join the European Defence Fund limits the scope for joint procurement.

The China factor: double exposure

Ian Lesser of the German Marshall Fund warns that the biggest shock to Europe may come not from US tariffs on European goods, but from an aggressive US trade war against China. If Trump imposes 60 per cent tariffs on Chinese imports, as he has threatened, Beijing will redirect exports to Europe, flooding markets with cheap steel, electric vehicles, solar panels and chemicals. European producers, already struggling with high energy costs, would face a pincer movement: locked out of the US market by tariffs, undercut at home by Chinese overcapacity. "For Europe it's double exposure: exposure to what America might do and then what China will do in response," Lesser said.

A more fractured Europe than 2016, but also a tougher one

Analysts debate whether Europe is weaker now than in 2016. The answer is yes and no. Growth is slower: the euro area expanded by 0.5 per cent in 2024, compared with 1.9 per cent in 2016. Populist, eurosceptic parties are stronger, the AfD polls second in Germany, Giorgia Meloni leads Italy, Geert Wilders won the Dutch election. Some, like the AfD, are soft on Moscow; others, like Meloni, may prefer a bilateral deal with Trump over EU unity.

But 2016 Europe was reeling from the migration crisis, the Brexit vote had just triggered predictions of EU disintegration, and the eurozone crisis was a recent memory. Since then, the EU has negotiated Brexit, survived Covid, maintained sanctions on Russia, admitted Finland and Sweden to NATO, and launched a €800 billion recovery fund backed by joint borrowing. The wounds of Brexit have healed sufficiently that the UK is now treated as a close partner rather than a departing member. NATO is larger and more cohesive, with a 32nd member, Sweden, that brings significant Arctic capabilities.