- Under pressure: The United States and China are deliberately exploiting dependencies – not only in trade relations – to exert pressure on Europe. Europe’s military dependence on the US was a key reason why the EU agreed to the lopsided “Turnberry Deal”.
- A tariff wall: A 15 per cent US tariff now applies to most European exports, with significantly higher duties for key sectors: 25 per cent on light trucks, an additional 50 per cent on steel, aluminium and copper products, and up to a further 25 per cent on machinery and equipment.
- Dependency is costly: Despite these significant concessions, Trump continues to make new demands. Europe must therefore cut critical dependencies — in energy and defence above all — that an adversarial Washington can weaponise.
- Strategic autonomy is key: To make itself less vulnerable to coercion, the EU should boldly advance its strategic autonomy. To this end, it should strategically deepen its single market, build up its own capabilities in key sectors, and align its foreign trade relations with its long-term interests.
- The single market is the lever: A 450-million-consumer bloc and a coordinated industrial policy in strategic sectors remain Europe’s strongest hand.
The return of Donald Trump to the White House has fundamentally altered the landscape of global trade — and for Europe, the shock has been profound. While the first Trump administration had already tested the limits of the transatlantic partnership with selective tariffs, the second term marks a decisive break. The sweeping “Liberation Day” tariffs of April 2025, targeting virtually all countries, made clear that the United States no longer sees itself as a staunch advocate of the rules-based trading system, but as a great power willing to weaponise trade for geopolitical ends.
For the European Union, this is more than another trade dispute. The EU was originally conceived as a common market that grew out of a customs union, and the commitment to open markets and a rules-based multilateral trading system is deeply embedded in its DNA. The sudden shift of its most important partner toward unilateralism therefore strikes at both the economic model and the political identity of the Union.
The challenge is compounded by a second structural shift: the gradual closing of the Chinese market. China’s renewed emphasis on domestic production and technological self-reliance has reduced opportunities for European exporters. At the same time, weak domestic demand is encouraging Chinese manufacturers to export on a massive scale, raising competitive pressure on European producers in third markets. Europe thus finds itself squeezed between two economic superpowers pursuing increasingly mercantilist strategies.
Where things stand after 15 months
After more than a year, the effects of Trump’s trade policy on Europe are becoming visible — and they are far from benign. The United States has imposed a dense web of tariffs that targets Europe’s industrial core. Most exports are now subject to a baseline tariff of around 15 per cent, although significantly higher rates apply to certain key sectors: 25 per cent for light trucks, as well as additional tariffs of 50 per cent on steel, aluminium, and copper products, and up to 25 per cent on mechanical appliances, machinery, and equipment.
These measures hit precisely the sectors that matter most for European economies. Exports to the United States are heavily concentrated in pharmaceuticals, vehicles, and machinery — industries that together account for more than half of transatlantic trade. Germany, with its export-oriented model and strong manufacturing base, has been particularly exposed.
Recent data confirm the damage. While overall EU exports increased in 2025 owing to a sharp rise in pharmaceutical shipments from Ireland — where all major US manufacturers operate large production facilities — 21 of the 27 EU member states saw declines. Germany’s exports to the United States fell sharply, by almost 10 per cent overall and by nearly 18 per cent in the automotive sector. Machinery exports also dropped significantly, reflecting both tariffs and new administrative burdens.
In fact, the impact of Trump’s policy goes beyond tariffs. Non-tariff barriers — such as complex and excessive documentation requirements — have created major obstacles, particularly for small and medium-sized firms. For many exporters, the uncertainty and compliance costs are as damaging as the tariffs themselves.
Moreover, trade policy has also become entangled with security issues. The United States has repeatedly linked economic concessions to geopolitical demands, from defence spending to territorial disputes. The resulting “Turnberry deal” of mid-2025 illustrates Europe’s vulnerability: significant concessions were made, including tariff reductions and large-scale commitments to purchase US energy, while the underlying uncertainty remained.
In short, Europe is not just facing a trade conflict; it is confronting a more transactional and coercive international environment. Market access will be granted as a quid pro quo for concessions in trade or other policy arenas, and it will be more volatile than in the past.
What Europe needs to do
Europe’s initial response to Trump’s escalation was cautious, even hesitant. The instinct reflected institutional constraints and a desire to avoid further escalation, but it also proved costly. The EU ended up signing a lopsided trade agreement in the Turnberry deal, and Trump continued his escalation regardless — at one point even demanding the annexation of Greenland. A key lesson is that the EU must remain clear-eyed and strategic.
Europe should avoid blind retaliation. Tariffs are a blunt instrument and often backfire by raising costs for domestic consumers and firms; a spiral of mutual protectionism would damage Europe’s own economy. At the same time, Europe cannot afford passivity. Retaliation should be targeted, focused on politically sensitive sectors in the United States where it creates leverage without excessive collateral damage. The EU’s growing willingness to consider instruments such as the anti-coercion tool points in the right direction.
Beyond immediate trade tactics, the deeper task is to reduce Europe’s structural vulnerabilities. Diversifying trade relations is an obvious step. Recent progress on agreements with Mercosur and India shows that Europe is moving in this direction. However, these markets are simply too small to replace the United States or China. Trade diversification is necessary, but not sufficient.
More fundamentally, Europe needs to de-risk from the United States itself. That means reducing dependence in critical areas where economic ties can be weaponised. Energy is the prime example: the commitment to large-scale imports of US liquefied natural gas under the Turnberry deal highlights the risk of new dependencies. Diversifying suppliers and expanding domestic renewable capacity are therefore essential.
De-risking must extend to security. Since Trump systematically exploits Europe’s military dependence on the United States to exert pressure, Europe needs the capacity to guarantee its own security. Strengthening European defence capabilities is therefore not only a geopolitical necessity but also an economic one, since it reduces exposure to political pressure.
At home, stronger domestic demand can help rebalance Europe’s growth model. For too long, countries such as Germany have relied excessively on exports. A shift toward investment and consumption would make the economy more resilient to external shocks.
Europe must also make better use of its single market. With 450 million consumers, it remains one of the world’s largest economic areas, which Europeans can shape according to their own visions, values, and rules. Europe can turn the need to decarbonize the economy into a successful business model by setting ambitious standards to stimulate and accelerate the development of climate-friendly technologies and production processes, and by leveraging the size of the single market to scale these technologies to a profitable level.
Europe’s path to greater independence and resilience lies in the successful transformation of European industry, which is currently under severe pressure due to the slump in exports to China and the United States and the rapidly increasing competition from Chinese suppliers – not only in non-European markets but also within the EU internal market. To effectively counter the risk of deindustrialisation, Europe needs a coordinated industrial policy that can help foster strategic sectors — from semiconductors to clean technologies — while ensuring that critical capabilities are developed and retained within Europe. The renewed interest in industrial policy across the EU as well as the willingness to adopt a more flexible approach to WTO rules that have at times constrained industrial policy reflects a growing recognition of this need.
Trump’s trade policy has exposed the fragility of Europe’s economic model and its geopolitical positioning. The assumption of a stable, rules-based international order anchored by the United States no longer holds. Europe’s response must go beyond short-term crisis management. It requires a strategic shift: toward greater sovereignty through reduced unilateral dependencies.
This does not mean turning inward. Strategic autonomy is not isolationism; it is the capacity to act independently and to choose partnerships freely. Europe remains deeply integrated into the global economy and should remain so — but not at any cost.
If the European Union succeeds in strengthening its internal market, diversifying its external relations, and building its own capabilities in key sectors, it can emerge stronger from the present crisis. The alternative — continued dependence in an increasingly hostile global environment — is far less appealing. Transatlantic relations may stabilise in the future. But Europe can no longer afford to base its economic strategy on that hope.
This article is part of a joint project with the Macroeconomic Policy Institute of the Hans-Boeckler-Stiftung examining Germany’s and Europe’s economic repsonses to the challenges of the second Trump administration.
