by Jamie Shea*
We are just days away from the second inauguration of Donald Trump as President of the United States. Campaign rhetoric is one thing; governing in the grey light of political and economic reality another. But the size of Trump’s victory in the US elections last November, and the Republican control of both Houses of Congress, suggest that Trump will have (for at least for two years up to the 2026 midterm elections) a fairly open field to implement his campaign promises and his political and economic agenda. Certainly nothing in Trump’s rapid picks for cabinet positions, nor in his numerous postings on X or his press statements, suggest that he is (for the moment at least) backing down or moderating his positions. At the same time, it is mainly campaign slogans, or giant but vague aspirations, that have been repeated- and heard, for instance to make America “the cryptocurrency capital of the world”. Elon Musk has spent more time trying to interfere in the politics of other countries like Germany and the UK than outlining how his new Department for Government Efficiency (DOGE) will save on public expenditure while making public services work better. Overall, very little detail on the how and what of policy has been added. We may have the names of the chief policy advisers and implementers, but they still need to be confirmed in office by the Congress and then come up with the substantive strategies and policy blueprints to turn campaign promises into action. Given Trump’s management style of preferring constant tension, disruption and periodic U-turns to consistent and detailed administration, and the major contradictions in the MAGA movement between the tech entrepreneurs who want to take the American economy forward and the small town, rural Trump supporters, who want to take it back to an imaginary past; the one thing that is certain is that nothing is certain. This is hardly likely to be a unified administration. There will be plenty of turf and ideological fights (for instance, over the US need for migrant workers), rivalries to have the President’s ear and comings and goings in senior positions. Yet for the EU institutions in Brussels, the safest bet is to prepare for instability while hoping that chaos and disruption could ultimately work both ways. They just might also open new opportunities to strengthen the transatlantic relationship once the self-harm of trying to dismantle it has become obvious to the more rational members of the Trump team, and the ultras and the incompetent have been exposed and forced to quit. After all, despite his strong transatlantic and multilateralist rhetoric, Biden will not go down in history as a great architect of the transatlantic relationship. He was a protectionist in trade policy, did not open any new trade negotiations, was cautious in supporting Ukraine or making the case publicly for US military support for Kyiv and the key role of NATO, left the Western Balkans largely to the EU and left plenty of loopholes open in US sanctions against Russia. So why not have an open mind about Trump, or at least not necessarily fear the worst?
Although the economic importance of Europe tends to be played down in the US these days, as doubts grow about the EU’s competitiveness, transatlantic trade still represents 42% of global GDP and employs 60mn workers on both sides of the Atlantic. Much had been accomplished in transatlantic trade relations in the past but with Trump returning to the White House in just one month, the question is what will come next? The EU is preparing for a less cooperative agenda as Trump has threatened to impose sanctions of 10%, or perhaps 20%, on manufactured goods and food products from the EU. Nonetheless, there are still many joint interests, from defence production and joint defence investments, harmonising anti-coercion instruments (for instance, vis-a-vis China) and retaining the benefits from mutual trade. The Trade and Technology Council (TTC), set up at the beginning of the Biden administration, has been a stabilising factor in the relationship, avoiding competition in industrial policy and allowing more convergence on standards and trade regulations. Although the US and EU have different legal systems and rules, they have come closer together on digital governance and have cooperated better on data flows and privacy concerns. They have also cooperated on disinformation campaigns and cyber-attacks and vulnerabilities. As a result of the TTC, the US has moved closer to the EU on data handling (for instance the EU’s General Data Protection Regulation or GDPR which has been taken up by certain US states), whereas the EU has moved closer to Washington’s views on economic security, particularly de-risking from China. The TTC has developed a joint approach to semi-conductor autonomy and to quantum data management. There are still differences, for instance on anti-trust legislation, but even where the details have proved to be challenging, the TTC has allowed both Washington and Brussels to better align their objectives.
There have been some other specific accomplishments as well:
-A joint road map on A1, although Trump might rescind Biden’s Executive Order on AI regulation to give America a competitive edge in the technology of big AI data models;
-a joint approach to the data connectivity regulation of electric vehicles;
-a joint early warning system on semiconductor supply chains and availability;
an agreement on data linked to quantum computing;
agreements on marine resources management and on pharmaceuticals;
-a joint approach to best practices in green procurement (for instance, energy and transport);
-and a joint approach to export controls and sanctions imposed on Russia (15 packages of EU sanctions thus far) after its invasion of Ukraine.
The new European Commission, which entered into office on 1 December, very much wants to keep the TTC. The Trump administration has not yet signalled its intentions, although the Commission suspects that Trump would probably not want to continue the high-level TTC meetings (at ministerial level). The Commission is open to a restructuring or streamlining of the TTC to make it more efficient. The current 10 working groups are probably excessive. The Trump administration is planning to impose tariffs on goods, but this still leaves services as an area of potential cooperation which the TTC could tackle. Even if Trump abandons the TTC altogether, the EU and the US would need some kind of forum where they could talk to each other on trade issues. A new agenda could embrace resilience in future 6G networks, the use of trusted vendors for technology components and services, the safety of undersea cables and joint research activities. There could be more agreements on mutual recognition of standards and joint technology certificates. If the EU and the US are not able to agree on common standards, these will be set ultimately by China which will take the lead on technology. AI is a key area for transatlantic alignment, and Japan and Canada could be brought into this effort by using the G7 framework as well. The protection of minors online from abuse and exploitation, and giving academics and researchers guaranteed access to AI engines and data models could be two areas where the US might want to work with Europe. But social media and tech platform regulation will be a challenge. Plans by the Trump administration to loosen the rules on content moderation, as desired by Elon Musk, or to backtrack on a Congress mandated restructuring of TikTok, accused of gathering information on behalf of the Chinese state and enabling Russian interference in elections in Moldova and Romania, would run counter to the EU’s Digital Services Act. But one concession that the new Commission might be willing to make to the US would be to open the TTC up to more stakeholders, especially the US tech and business community. For its part, the Commission could make trade and digital issues less the sole responsibility of the Commissioner holding the portfolio (in this case, Henna Virkkunen in charge of Tech Sovereignty, Security and Democracy) and more a task for the whole College of Commissioners working more closely together. The bottom line is that it makes sense for the US to do business with Europe despite the oft-repeated claims of some pro-Trump economists that the world needs the giant US market more than the reverse.
In this regard, we should remember the first Trump administration when, despite Trump’s occasionally hostile rhetoric against the EU, the US and Europe worked well together on 5G safety standards (in particular Huawei), and on undersea cables. They negotiated a formal agreement on undersea cables and started a dialogue on autonomous weapons systems and military grade drones. Although Trump complained about the US trade deficit vis-a-vis the EU, the US actually had a surplus when it comes to services. When it comes to the digital economy, norms, standards and certification can be the equivalent of tariffs on goods in promoting protectionism. Yet they also function as trade enablers by giving business predictability and helping to standardise products and services across multiple markets. Europe and the US have a key interest in agreeing on common standards as that way they could create global markets to which they would both have optimal access. US tech companies certainly could not ignore Europe. In the last decade, Google obtained 80% of the search engine market share in Europe, generating massive profits. At all events the Commission is prepared for all scenarios if Trump imposes 10-20% tariffs on the EU. But it also wants to put a more positive agenda on the table.
Much of this discussion concerns the merits of regulation versus deregulation when it comes to the EU regaining its competitiveness. The recently published Draghi report into EU competitiveness complains about the high costs of compliance for business with EU regulations. The risks of not meeting the compliance standards is discouraging investment in the EU, especially in the field of AI where the US tech giants are investing more annually than most individual EU governments. If the US is deregulating while the EU is going in the opposite direction, the US will gain a major competitive advantage over the EU and suck EU business and investment towards the more open US market. This has already happened with Biden’s Inflation Reduction Act. As a result, an increasing number of EU politicians question the added value of some EU legislation. For instance, is it necessary to have an AI Liability Act when the EU’s AI Act, recently passed by the European Parliament, is still being implemented? In this view, the EU has to cut red tape, bureaucracy and excessive compliance costs. It has to review and revise existing regulations faster rather than leave them unchanged on the shelf for years. The review and revision of GDPR has been mentioned in this regard. Meanwhile the German Chancellor candidate, Friedrich Merz, has said that Trump tariffs should not just elicit counter-tariffs by the EU, but serve as a wakeup call to improve EU competitiveness and induce Brussels to propose a free trade agreement to Washington as an alternative to new tariff trade barriers.
Yet other EU insiders push back hard against the view that the EU overregulates and that regulation per se is bad for business investment and competitiveness. Draghi has identified a number of reasons for the EU’s declining competitiveness, extending well beyond excessive regulation. For instance, the EU lacks an integrated financial capital market or a strong venture capital culture in contrast to the US. Europe has structural problems and there is generally less appetite for risk on this side of the Atlantic. But regulation can also produce competitive advantage. Business likes a stable regulatory environment for planning and investment, and customers do not want to be treated as guinea pigs to test unsafe products and services. Consumer confidence is built on products and services incorporating safety standards and consumer protection rights. The EU’s GSM standards in the 1990s helped to boost the mobile phone industry worldwide. So smart regulation creates markets, and regulation and competitiveness are wholly compatible. It is all about the positive use of technology bearing in mind that European consumers would not use AI technology if they are suspicious or afraid of it. Lack of consumer confidence or business doubts about AI regulation would dampen investment and product innovation. Thus the EU should not seek to imitate the US but find its own way to be competitive. For instance, rather than develop its own large scale big language AI models based on feeding in as much data as possible, the Commission prefers to research more limited areas of AI applications, geared towards innovation. It is building a number of AI research centres for this purpose costing around €400mn apiece. They can help small and medium businesses to adapt to AI and use super computers to enhance AI-driven business innovation. Yet the US is not able to escape AI regulation either, despite some of the rhetoric from the tech entrepreneurs. There are currently around 700 proposals at congressional, state or local levels in the US.
At the same time, digital is clearly a growth game-changer for the new Commission. Improving the EU’s competitiveness is its number one priority as President von der Leyen’s letter of mission to Commissioner Virkkunen made clear. Draghi has pointed out that if the tech sector is taken out of the US economy, its size would be more or less the same as the EU. Europe has its strengths: there are more AI engineers in Europe than in the US; but it needs to harness those strengths better. The new Commission will soon come forward with a proposal on digital competitiveness and annually issue an update of its Digital Decade Report to indicate progress.
The new proposal will be part of the EU Data Union Strategy, and will be less about new legislation than steps to ensure that the EU has sufficient data for AI training and specialist applications. Simultaneously, the EU should seek more digital partnerships with other western countries to diversify away from the US. The UK and India are frequently mentioned, and a model to be followed is the EU-Japan digital partnership which has been working well. But an immediate challenge will be to avoid new transatlantic friction over tech company fines early on in the Trump administration. Last autumn, the EU published its preliminary findings on the compliance of the US social media platforms with EU data content standards. Given the role of X and Elon Musk in the US election campaign and the incoming Trump administration, this has now become a hot topic in US-EU relations. The incoming Vice President, JD Vance, has warned the EU of major consequences if X is found deficient and is penalised. We know that the Commission is not ready to move yet. It wants to be on firm legal ground before proceeding because it is certain that any decision it takes will be litigated. On the other hand, one quick win could be to propose to Trump to make the penalty truce on Airbus and Boeing subsidies in the World Trade Organisation permanent. This truce also applies to steel and aluminium production subsidies on both sides of the Atlantic. Biden and the last European Commission agreed to a temporary freeze in these penalties which helped to remove one of the most contentious issues in the transatlantic economic relationship. Given the problems that Boeing has been facing recently with production and quality control, giving a fillip to Airbus orders, Trump may well see a win here.
Of course, there will be unavoidable areas of contention which will have to be managed as best as the EU can. Oil and gas drilling is one, as the EU sticks (more or less firmly) to its goal of carbon neutrality by mid-century and switches wind farms and nuclear power for more oil and gas exploration and production. Trump has already warned the countries bordering the North Sea to stop increasing taxes on US companies operating in the North Sea. The UK government has also upset the incumbent President by increasing its windfall tax on companies operating in the North Sea from 35% to 38% and extended by one year- and to remove its “windmills” in the process. Exxon has already left and another US company, APA Corp is due to exit the North Sea by 2029 as oil and gas production falls by 20% in 2025. In the US itself, Trump has promised a major deregulation of oil and gas production to benefit the domestic US producers and probably a halt to government subsidies to renewables and to green sustainable energy projects. But his ability to do so may be undermined by the conviction of large swathes of US industry that green energy, smart grids and electric vehicles represent the future and the unwillingness of the banks and capital markets to invest in new drilling projects. Already this past week, the state of New York levied a US$75bn tax over 25 years on fossil fuel companies to help pay for upgrades to roads, water supplies and transit systems. California, which has long pioneered electric vehicles and climate change adaptation and remains under Democratic administration, will no doubt have its word to say as well. Moreover, larger EU purchases of US liquified natural gas (LNG), (which Trump wants to export) may well dispose Trump more favourably towards Europe. This said, the EU will have its own work to do to maintain its own climate adaptation goals on track. At the end of last year, the European Parliament, responding to electoral pressures to focus more on industrial recovery and less on environmental protection, postponed legislation to halt deforestation and softened environmental regulations and green farming practices in the wake of farmers’ protests across the continent.
Finally, there could be an area of cooperation between Brussels and Washington in the area of reshoring and friendshoring, or the idea of reducing dependencies on unreliable or hostile suppliers in key areas such as energy, electronics, raw materials or rare earths and minerals. The imperative is to diversify complex supply chains and improve storage and stockpiles of vital metals, minerals and energy resources to withstand crises or prolonged disruptions to global trade flows. Denying the same adversaries access to western technologies, for instance large computer chips that can fuel AI language models, is the corollary of this effort in developing more industrial and economic autonomy. But derisking or even decoupling from foreign markets means a loss in global trade flows and prosperity that has to be compensated by an increase in interregional trade within the western democracies and more local production of key items as well. For instance, at the beginning of January, the Biden administration introduced a public consultation on a proposal to ban the sale of Chinese commercial drones in the US, which make up 80% of the market, largely supplied by the Chinese company, DJI. The company has been accused of aiding the Chinese military and channelling data gathered from many of the one million drones flying in American airspace back to Beijing. Yet, will the US be ready to open its market to alternatives from Europe or other US allies such as Japan, Australia and South Korea? Or allow US companies to pursue joint ventures or mergers with foreign investors to attract the knowledge and capital to ramp up US domestic production? The precedents here are not promising. As one of his last acts in the White House, Biden vetoed the proposed sale of US Steel (the country’s second largest steel producer) to Nippon Steel of Japan. The sale was worth US$14.9bn. The Congressional Committee on Foreign Investment in the US did not reach a conclusion on the sale and left the decision to the White House. Although US Steel strongly supports the takeover in order to increase domestic steel production in the US by 20mn tonnes annually, the Steel Workers Union (USW) has protested. Yet, Nippon Steel guaranteed to uphold existing labour contracts and to move its headquarters to Pittsburgh. It also undertook not to cut production without the agreement of the US government. It also paid a hefty premium on the deal to induce the federal government to support it, and Nippon Steel is unsurprisingly mystified as to how its takeover of US Steel can be considered a threat to US national security. The message to international investors will be to think twice before embarking on investments in politically sensitive US companies with a strong unionised presence.
In conclusion, the Trump administration portends plenty of anxiety and uncertainty regarding transatlantic trade in the near term. But governing is much harder than campaigning as it means trade-offs and difficult choices that pit different factions and interests against each other, leaving the EU not as a helpless onlooker, but as an actor with agency to influence US policy making. If it knows how to take advantage and chose its campaigns skilfully. Moreover if the EU can survive the initial onslaught of tariffs without too much damage, and wait for the Trump administration to evolve and hopefully overcome its contradictions, Trump’s desire to break with the status quo may offer some opportunities to move the trade and economic relationship forwards and not only backwards. In the meantime, political change in the US and in the wider world with new trade blocs such as the BRICS, should remind the EU that it cannot stand still. It needs to deregulate and improve its competitiveness, innovate more and better, maintain as far as possible its historical relationship with the US while strengthening partnerships with other non-authoritarian nations across the globe. It has to be able to defend itself against predators while being open and engaged enough to set international standards and a forward looking trade agenda. Admittedly, none of this is new, but it often needs a big shock to the system before policymakers finally have the energy (and the fear) to act. In Lampedusa’s celebrated novel, The Leopard, the Italian aristocrat hero is fond of proclaiming that “things must change to remain the same”. Trump may offer just the solution to that core dilemma of Europe today.
*Senior Fellow for Peace, Security and Defence at Friends of Europe, and former Deputy Assistant Secretary General for Emerging Security Challenges at the North Atlantic Treaty Organization (NATO)
**first published in: Friendsofeurope.org
By: N. Peter Kramer
