Trump threats risk stretching Europe’s fragile unity to breaking point

European officials are trying to rally support from member states as they brace for President Donald Trump to play on their divisions to force through his “America First” agenda.

The European Commission, the EU’s executive arm, urged member states in a private meeting last week to remain united, with some comparing the situation to the Brexit negotiations, according to people familiar with the discussion. Back then, the UK tried to undercut the bloc’s strength by seeking bilateral deals with individual countries.

Leaders including Germany’s Olaf Scholz, France’s Emmanuel Macron and Denmark’s Mette Frederiksen have jetted across the continent since Trump’s inauguration to discuss how to deal with risks posed by the new administration in Washington.

And this couldn’t come at a worse time for the EU which is fighting from a position of weakness, with the bloc suffering from a deepening economic malaise and political fragmentation paralyzing the governments of its two largest members, Germany and France. During the discussion with the commission last week, countries expressed concern that Trump would try to divide the EU with bilateral deals or targeted tariffs.

“During Brexit, Europe had the upper hand,” Alicia García-Herrero, a senior fellow at the Brussels-based economic think tank Bruegel, said in an interview. “But now Europe is going to split, no doubt.”

The EU is moving quickly, as the expectation is that a new round of tariffs from the US is inevitable, and this time things will be worse than the trade fight Trump sparked in 2018, said the people, who spoke on the condition of anonymity. And while officials want to explore all avenues for cooperation, they are skeptical of the idea that they can talk Trump out of triggering a trade clash that could embroil everything from steel and cars to European tech regulations and tax policy.

Instead, the EU has prepared multiple lists of American goods to hit with its own retaliatory tariffs if Trump moves forward with levies, modelling various possibilities depending on what the initial US salvo looks like, the people said. But this time around, the EU has devoted more time to prepare a response and its list of targets is much bigger.

Trump vowed on Monday that he would enact across-the-board tariffs that are “much bigger” than 2.5%, and singled out the steel and aluminum sectors, which he targeted with duties during his last term.

Speaking to the World Economic Forum in Davos, Switzerland, last week, the US president said that “the EU treats us very, very unfairly, very badly.” Europe has also been shaken by Trump’s insistence that he wants to take over Greenland for security reasons, and has refused to rule out using force.

The EU needs to “use this time to prepare, either for a discussion or for retaliation,” Arancha González Laya, dean of the Paris School of International Affairs at Sciences Po, said in an interview. “We should remain united, because given integration of the European economy, tariffs on one member states is tariffs on the EU as a whole.”

What Bloomberg Economics says…

“The EU will attempt to negotiate first, likely presenting a united front. But there is limited capacity to address those concerns.” — Jamie Rush, Antonio Barroso and Eleonora Mavroeidi. For full research, click here

It’s possible Trump orders tariffs immediately, but some in Europe believe they won’t hit until after April 1, when the new administration is due to report on how to address unfair and unbalanced trade and “recommend appropriate measures, such as a global supplemental tariff or other policies” to remedy the situation. The EU has also been having conversations with like-minded US trading partners and sharing notes, according to the people.

The commission is also preparing an offer to improve bilateral relations with the US that could include more liquefied natural gas imports, fertilizers and weapons, one of the people said. Other areas for potential collaboration include closer alignment on China around export controls, investment screenings and working together to tackle China’s overcapacity, particularly in the steel sector, the person said.

Denmark’s Mette Frederiksen and Germany’s Olaf Scholz ahead of their meeting at the Chancellery in Berlin, on Jan. 28. Image: Krisztian Bocsi/Bloomberg

“Our first priority will be to engage early, discuss common interests, and be ready to negotiate,” Commission President Ursula von der Leyen said in Davos last week. “We will be pragmatic, but we will always stand by our principles. To protect our interests and uphold our values – that is the European way.”

“What Europe will do is to negotiate, it cannot do any other thing,” Bruegel’s García-Herrero said. “I see a very difficult horizon for Europe, and I do see some US tariffs on Europe, but it would be only on some specific products.”

And the timing is very difficult for the EU. Germany’s Scholz is about to be ousted in snap elections on Feb. 23 and in France, Macron is a lame-duck president who is consumed with trying to pass a budget while keeping the far-right leader Marine Le Pen out of power.

And populists within the EU have been taking advantage of the division. Hungarian Prime Minister Viktor Orban used the moment to rattle the bloc last month by saying he wouldn’t necessarily support the extension of the EU’s sanctions against Russia — a routine process that requires the unanimous backing of all 27 member states. That forced the EU to consider workarounds and offer Orban incentives, which eventually led to Hungary caving on the threat.

Last year, former European Central Bank President Mario Draghi warned of a “slow agony” in the bloc if member states failed to act quickly to boost the region’s productivity with additional investments. He added that this failure would make the EU less competitive with the US and China.

‘Existential’ issues

“The foundations on which we built are now being shaken,” Draghi said in the report he presented to the EU. “This is an existential challenge.” Macron put it in starker terms, saying “the EU could die” if it continues to follow its “classical agenda.”

An analysis by Bloomberg Economics shows that the bloc’s economy would be about €3 trillion ($3.3 trillion) bigger if it had kept pace with the US in the quarter century since the monetary union was created — enough to boost the income of the average worker by about €13,000 a year.

All these factors mean that the EU – despite its insistence on maintaining unity in the face of Trump’s threats – may not be up to the task. Bloomberg Economics estimates that a 10% tariff would lower exports to the US by 30% and a 25% tariff by 70%, putting between 0.7% and 1.5% of GDP at risk.

The EU and US could reach a trigger point at the end of March when suspended EU tariffs on $3 billion of US products are set to snap back. This particular fight started in 2018, when the US hit nearly $7 billion of European steel and aluminum exports with duties, citing national security concerns. The bloc retaliated by targeting politically sensitive companies with retaliatory duties, including Harley-Davidson Inc. motorcycles and Levi Strauss & Co. jeans.

The two sides agreed to a temporary truce in 2021, when the US partly removed its measures and introduced a set of tariff-rate quotas above which duties on the metals are applied, while the EU froze all of its restrictive measures. The US quotas that replaced the punitive duties will expire at the end of the year.

‘Time bomb’

“If they let that March date come and they put tariffs back in place, that’s just going to be awful,” said Daniel Mullaney, a senior fellow at the Atlantic Council who served as senior US trade negotiator during the first Trump administration. “That’s a bit of a time bomb.”

Ignacio Garcia Bercero, a non-resident fellow at Bruegel think tank and former senior EU negotiator with the US, recommended that the EU extend the suspension while the commission indicates the willingness to have a more structural discussion on the issue. “It won’t be a good idea if we take any measure before they do,” he said.

The EU has yet to discuss how it will approach that deadline, the people said.

Tech regulation is another area ripe for a transatlantic fight, with Trump blasting the EU for having targeted Apple Inc., Alphabet Inc.’s Google and Meta Platforms Inc. The EU has established a reputation globally for its aggressive regulation of major technology companies.

France’s Emmanuel Macron welcomes the European Commission’s Ursula Von Der Leyen at the Elysee Palace in Paris, on Jan. 28. Photographer: Benjamin Girette/Bloomberg

Apple, Google, Meta and the X platform owned by Trump confidant Elon Musk may all be facing billions in fines — or even mandatory divestment orders — from dozens of separate ongoing EU investigations.

“They shouldn’t be doing that,” Trump told the conference in Davos. “That’s, as far as I’m concerned, a form of taxation. We have some very big complaints with the EU.”

Some officials predict that the fight over tech regulation and taxation could be even more vicious than any dispute over tariffs, as Trump is transactional when it comes to trade. Finding a potential landing zone over the rules governing tech will be far more complex, they said.

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