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Europe’s worst-case scenario for the future of transatlantic economic relations rose to the surface this week when President-elect Donald Trump gave a clear signal that he’ll use American trade might as a means to exert foreign policy leverage.
His threat to hit Canada, China and Mexico with tariffs because of the flow of illegal drugs and migrants into the US sent European stocks lower, particularly shares of companies like Stellantis NV and Volkswagen AG whose vehicles would be vulnerable in a trade war with Washington.
Trump’s warning served as a blueprint for the European Union on how he’s likely to approach his many grievances with the bloc: to impose — or threaten to impose — tariffs using norm-breaking justifications on policy issues that don’t necessarily relate to the protection of domestic industries. When it comes to trade, Trump has argued that the EU treats the US worse than China does.
“Europe needs to be prepared,” Penny Naas, a global public policy expert at the German Marshall Fund in Washington, said in an interview. “This to me seems like the starting gun of what they should expect is coming their way sometime in the not too distant future.”
The euro initially inched higher versus the US dollar on Tuesday after Trump’s remarks on social media, rebounding from a two-year low amid relief that he made no mention of European trade tariffs. But the gain was quickly erased. European stocks slumped, while the region’s bonds outperformed global peers.
Europe was largely caught off-guard in 2017 when Trump, citing national security concerns in his previous term as president, levied tariffs on European steel and aluminum. The 27-nation bloc had to scramble to defend its companies and to impose retaliatory measures.
Since then, the EU has reinvented its trade doctrine, making it more assertive and expanding its economic toolbox to counter coercive practices.
“We are well-prepared for the possibility that things will become different with a new US administration,” German Foreign Minister Annalena Baerbock said after a Group of Seven meeting in Italy Tuesday. “If the new US administration pursues an ‘America first’ policy in the sectors of climate or trade, then our response will be ‘Europe united.’”
