Scope of uncertainty: US-European trade relations

March 2025  |  FEATURE | GLOBAL TRADE

Financier Worldwide Magazine

March 2025 Issue

The importance of international trade cannot be understated. Not only does it result in countries participating in a global economy, it also encourages opportunities for foreign direct investment (FDI).

However, the election of Donald Trump as the 47th president of the United States on 5 November 2024 sent shockwaves across the world, with trade regimes one of the many arenas waiting to discover what a second Trump administration has in store.

“The US-European trade relationship was strained yet professional under President Biden but could be apocalyptic under the new president,” suggests Simon Heath, a partner at the Heligan Group. “Trump is not a supporter of supranational organisations, whether economically like the European Union (EU) or regulatory like the North Atlantic Treaty Organization.

“Under Trump’s first presidency, many considered the transatlantic relationship as being in crisis mode with the introduction, or threat of introduction, of tariffs on EU goods, such as automobiles,” he continues. “Many of these threats failed to materialise but did enable the US to negotiate more strongly for trade concessions and on matters of national security.”

That said, the unrealised threats of Trump’s first term have the potential to crystallise in his second and pose significant challenges for European trade policy. These include trade barriers for European products being exported to the US market, which, in turn, would require trade agreements to be sought with other global partners.

Trade under Trump

If the new Trump administration stays true to the ideals outlined in the ‘2024 Republican Party platform’ – which lists a number of trade policy goals for the 47th presidency – a period of great instability in global economic governance appears likely, with important implications for EU member states, as well as the UK. Those ideals are described below.

First, US trade policy will discriminate against foreign products, workers and services. Repeated several times in the platform under the headings ‘America First’, ‘Buy American’, ‘Hire American’ and ‘Becoming a manufacturing superpower’, this goal alludes to new tariffs and non-tariff barriers that will shelter US firms and workers from foreign competition.

Second, the new Trump administration aims to continue with efforts at rebalancing US trade flows. Trade policies that reduce US imports or increase US exports to phase out the US trade deficit is the goal in this instance. The platform also suggests that Trump will seek to renegotiate “unfair” trade deals and crack down on allegedly “unfair” trading practices of partner countries.

And third, US trade policy will promote onshoring and secure strategic independence from China. Trump is looking to revoke China’s most-favoured nation status under the rules of the World Trade Organization according to this trade policy goal. Tariffs of around 60 percent on China could also pressure the UK and EU to align more closely with US policies, despite potential conflicts with their own economic interests.

European perspective

While the EU and the UK managed to limit the negative effects of US trade policies during Trump’s first presidency, second time around the expectation is for tariffs to be far more ranging and draconian – between 10 to 20 percent on imports, according to the Republican platform.

“Trump’s ‘America First’ ideology will be more inflammatory and challenging for both the EU as well as the UK,” contends Mr Heath. “Within the EU, the key economic countries of France and Germany have both political and economic instability, which weakens the cohesiveness of the EU as a negotiating power.

“This is compounded by a resurgent right-wing political wing in more junior EU member states, further muddying the waters,” he continues. “Therefore, without a clear position, it will be difficult to negotiate with the US, particularly with a president who will be less receptive to entering into discussions.”

Mr Heath also suggests that the UK may find itself ostracised by the US administration, viewed as a minority power in the European region, outside of the EU framework. Historical, anti-Trump comments by Keir Starmer, the UK prime minister, and David Lammy, the UK foreign secretary, have also served to sideline UK trade interests.

Triumvirate asymmetry

US-European trade relations is, of course, one of the many issues sitting in Mr Trump’s in-tray. Its trajectory has already been mapped out to a degree and bears little relation to the actions taken by Trump during his initial sojourn in the White House.

“Trump has taken a much more aggressive stance in the appointment of key roles across his future administration, surrounding himself with more outspoken and often politically inexperienced individuals,” points out Mr Heath. “This is likely to create a greater degree of friction with the international community and potentially an inflexible and uncompromising position on key foreign affairs matters, including trade.

“Political asymmetry will be the most significant challenge for the US, EU and UK triumvirate,” concludes Mr Heath. “The left-centrist EU and UK are misaligned to the conservative doctrine in the US. This is further compounded by Trump, who will use protectionist trade strategies, such as tariffs on selected products and industries, to support US growth in line with his ‘Make America Great Again’ rhetoric.”

These trade strategies have recently taken greater shape with declarations that new tariffs “will definitely happen with the EU” – a continuation of Trump’s pre-election warning that the EU is “going to have to pay a big price” for not buying enough American exports – while tariffs on UK imports “might happen” but a deal “could be worked out”.

© Financier Worldwide

BY

Fraser Tennant