US PRESIDENT Donald Trump’s second term, dedicated to inaugurating a new American “Golden Age”, is likely to mark a decisive moment in the decline of the West. By declaring a trade war on the rest of the world, the White House has already demonstrated the limits of US power (thereby further diminishing that power), weakened US-led alliances and global institutions, and is proving, sadly, that America’s erstwhile partners – most notably the European Union (EU) – will be unable to repair the damage.
In the end, the direct economic harm from the fights over tariffs will probably be manageable, for the US at least. The geopolitical prognosis is bleaker.
The administration reached its first tentative trade deal last week. This agreement with the UK is strikingly thin even as it stands and might yet unravel. Talks with China, the EU and other trading partners have started, with Trump apparently willing to moderate his threats as other governments weigh their options for retaliation. But the president has already blinked. Financial markets vetoed his first assault; the White House now understands that it must calibrate its demands to avoid renewed panic. Its initial threats are no longer credible.
Yet there is no going back to how things were before – and there is no way for the West, without US leadership, to re-organise itself in support of a new, rule-based global order. Much as the EU might wish to step forward as the US’ understudy in that role, it cannot and will not.
Why not? On the face of it, this is Europe’s moment. It is no economic weakling. Correctly compared (on the basis of purchasing-power parity), the EU’s economy is about as big as that of the US. Granted, their shares of global output have both declined over the past several decades, to about 15 per cent each (as China’s has grown, to roughly 20 per cent).
But in economic terms, Europe need not submit to US bullying. Also, now that driving down the value of the US dollar is an explicit goal of US policy, Europe’s longstanding ambition for the euro to seize some of the global reserve currency’s “exorbitant privilege” – essentially, the ability to borrow for less – seems achievable. Trump’s willingness to bend under pressure suggests that this is the time for the EU to assert itself.
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The economist Paul De Grauwe recently proposed “a quick and easy way to put Trump in his place”. With China and the EU acting in concert, America’s trading partners should refuse to negotiate and threaten coordinated, proportional retaliation. This, he argues, would mobilise a domestic lobby of exporters in opposition to Trump’s policies – adding to the pressure from consumers opposed to tariff-induced inflation and investors alert to the risk of financial collapse. “A policy of joint retaliatory countermeasures would maximise the pressure on strategic export-reliant sectors such as high-tech and the digital services industries, thus increasing the probability of successful domestic opposition to Trump’s tariff policy.”
No. Again, threats do not work unless they are credible (and sometimes not even then). De Grauwe’s increased “probability” of defeating Trump’s tariffs is no guarantee of success. The EU is probably less willing than Trump, investors’ veto notwithstanding, to risk an escalating cycle of tariff retaliation and counter-retaliation – and Trump knows it.
More important, the US can bring other sanctions to bear. The EU has great economic weight but it is a military weakling. Trump is quite right that it has taken US protection for granted. Europe cannot afford to ignore his explicit and implicit threats to withdraw this support, even as Russia prosecutes its war on Ukraine and China’s global ambitions expand. The EU is planning, belatedly, to bear more of the defence burden itself, but filling the gap that the US is threatening to create will take years, if not decades.
And this touches on a deeper problem: The EU is politically weak. Its members are divided on just about everything – including how to deal with Trump. The European Commission’s outline of retaliatory tariffs will be contested. Members disagree on how to strengthen their defences and how to share the costs, about how to deal with China, about how much further (if at all) to widen the union and/or pursue economic and political integration. Domestic political divisions – in France, Germany and Italy – are undermining the wider European project and available for Trump to exploit.
Couldn’t “standing up to Trump” serve as the grand new unifying principle? I doubt it. Thanks mainly to its own lassitude, Europe still needs the US more than the US needs Europe. The bloc’s only course is to conciliate, limit the economic damage as far as possible, and quietly develop channels of international cooperation that do not rely on US leadership.
In the short term, as it tries to deflect Trump’s tariffs, it should recall the logic that guides its own single market: So-called concessions that make EU markets more open to US exports are wins for EU consumers. It is embarrassing, or should be, that they had to be forced on Europe by a tariff-loving US president – but they are gains nonetheless. Meanwhile, strengthen trade links with other countries and regions, making it clear to Trump and his successors that US participation in any new plurilateral arrangements, should the mood in Washington shift, would be celebrated.
To be clear, this is damage limitation, no more. Joseph Nye, who coined the term “soft power,” passed away last week. In a recent article, he explained why Trump, who sees himself as a hyper-realist in foreign affairs, is no such thing: “True realism does not neglect liberal values or soft power.” Trump has shown how easily those principles can be tossed aside. Reviving them, supposing that is possible, will be very much harder. BLOOMBERG
The writer is a Bloomberg Opinion columnist and member of the editorial board covering economics. Previously, he was deputy editor of the Economist and chief Washington commentator for the Financial Times.
