American voters have decided to give former President Donald Trump a second chance. The rest of the world must now accept this reality and adjust accordingly. This is especially true for Europe, which has long depended on the United States’ security umbrella and, more recently, on access to its vast consumer market.
Europe’s most pressing security concern is the deteriorating military situation in Ukraine. But having failed to ramp up its own military production, there is little that the European Union can do at this point except wait for the outcome of Trump’s promised negotiations with Russian President Vladimir Putin.
While the situation in Ukraine appears bleak, the outlook is far more optimistic on the trade front. The EU is the world’s largest exporter, with exports accounting for roughly 25% of its GDP—a significantly higher share than the US. Given that the U.S. is the bloc’s largest export market, the return of Trump—a self-declared “tariff man”—seems like a serious threat.
But with skillful EU diplomacy, the Trump administration could present Europe with some valuable opportunities. Trade policy remains one of the few areas where the bloc can act as a unified entity, enabling European countries to coordinate a strategic response.
The question now is how the EU should respond to potential Trump tariffs. Economic analysis suggests that responding to tariffs with tariffs does more harm than good. The usual argument for adopting a tit-for-tat strategy is that it may deter the other side from starting a trade war while signaling to domestic industries that policymakers will defend their interests. This reasoning may have made sense when governments used such tools sparingly to protect specific industries, but times have changed.
Trump’s tariff fixation partly stems from his belief that America is losing ground in global trade because other countries have much higher tariffs. Whether U.S. tariffs are truly lower than those of the EU or China is debatable, but what matters is that Trump perceives European tariffs as being 50% higher than in the U.S.
While “50% higher” sounds dramatic, the actual difference is between an average tariff rate of 3.5% in the U.S. and 5% in the EU. Not too long ago, when European and American policymakers were negotiating a transatlantic investment and free trade agreement, that gap was hardly a point of contention.
Given Trump’s emphasis on reciprocity, the EU should consider reducing some of its remaining tariffs. In particular, European policymakers could propose lowering the 10% import duty on cars, including electric vehicles (EVs), to the 2.5% tariff imposed by the US – or even eliminate it entirely.
To be sure, European leaders would have to set aside their pride to make such an offer. But they should take a page from the playbook of Jean-Claude Juncker, Ursula von der Leyen’s predecessor as European Commission president, who successfully defused a transatlantic trade war during Trump’s first term.
By embracing Juncker’s diplomatic approach, Europe could actually benefit from Trump’s tariffs. In fact, Trump’s plan to impose tariffs of up to 60% on Chinese goods and 10-20% on other countries could give European producers a competitive edge. This dynamic is already evident in the U.S. car market, where EU-based companies are thriving while Chinese EVs have been effectively shut out by President Joe Biden’s prohibitive 100% tariffs.
Keeping EU-U.S. trade relations relatively calm should therefore be a top priority for European policymakers over the next four years. Of course, these efforts would be futile if other countries were to follow America’s lead. In the 1930s, for example, the U.S. exacerbated the Great Depression by hiking tariffs and sparking a trade war that sent the global economy into a tailspin.
But this time may very well be different. Most countries appear uninterested in adopting Trump’s approach, which conflicts with the interests of the many small, open economies that form the backbone of global trade. Even China might respond to U.S. tariffs, but it has little incentive to impose sweeping import tariffs against other countries. Consequently, the tariff war Trump hopes to escalate may remain a Sino-American affair. Importantly, although the US and China are the world’s two largest economies, trade between them represents a fraction of international trade: U.S. imports of Chinese goods amount to approximately $500 billion, equivalent to just 0.5% of global GDP and 2% of world trade.
Thus, rather than lamenting the end of the rules-based international system, EU policymakers should focus on the pragmatic task of defusing trade tensions with the U.S. while keeping European markets open to the rest of the world.
Daniel Gros is director of the Institute for European Policy-Making at Bocconi University.