EU prepares for Donald Trump to retake US reins

The shadow of a possible Trump comeback had fallen over so much EU policy-making in the past two years, that the US election was virtually a more important calendar event than any European summit or electoral transition.

Almost every issue, from Ukraine, to climate change, to energy, to China, was tagged with the proviso "depending on the outcome of the US presidential election".

If 2016 was a shock, at least this time Europe has been trying to prepare. Senior EU officials have been meeting daily since the spring, while national capitals have been doing their own wargaming.

Since late summer, clusters of member state ambassadors have been holding "confessional" meetings in Brussels with European Commission president Ursula von der Leyen to share their own thoughts on how to respond to a possible Donald Trump victory.

This morning, EU ambassadors held a specially planned breakfast meeting at 8am to coordinate a European response.

An internal note circulated to capitals ahead of the meeting set out how the initial response should be framed.

The EU would send congratulations to Donald Trump, reiterate its attachment to the Transatlantic relationship and signal that it was "ready to further strengthen its relationship with the United States as well as pursuing objectives of common interest".

The note said the message should be that "the EU is determined to promote its values and interests with a view to ensuring security, stability and prosperity for its citizens".

The text concluded: "The EU will pursue its ambition to build a strong and sovereign Europe equipped to tackle current and future challenges such as the climate and digital transitions.

"We will promote an open economy and continue to engage closely with partners. In today's geopolitical context, the European Union is more than ever attached to an inclusive multilateral system guided by the principles enshrined in the UN Charter."

The text codes for the EU’s main anxieties over a Trump victory: saving Ukraine from Russian domination (hence the reference to the UN Charter), protecting Europe from a tariff onslaught by Mr Trump, and a determination to protect the international rules-based system, with a nod to keeping the EU and Washington on the same page when it comes to advanced technology and AI.

One EU diplomat provided an initial take: "There's no need to get ahead of ourselves, but we shouldn't be naive about what the future might hold for EU-US relations.

"The transatlantic relationship is a win-win for prosperity and security on both sides of the Atlantic. These election results reinforce the fact that as a European Union, we need to focus on our strengths and interests and be clear-eyed about our objectives. This requires unity and discipline from the EU and its member states."

Unity is already compromised by Viktor Orban, the Hungarian prime minister who so happens to be hosting dozens of EU and continental leaders at the European Political Community gathering in Budapest tomorrow.

On social media, he described the US result as "the biggest comeback in US political history! Congratulations to President @realDonaldTrump on his enormous win. A much needed victory for the World!".

The most critical issue for Europe is Ukraine.

Donald Trump has threatened to pull the US out of NATO and ditch military support for Kyiv.

To date, the United States has provided $64.1 billion in military aid since Russia’s invasion, including tanks, air-defence systems and long-range weapons.

Under the Biden Administration, the diplomatic support for Ukraine has been equally indispensable.

The US has led the Ramstein Group of 32 NATO members and 25 other countries, including Ireland, Japan, Australia, South Korea and New Zealand, to coordinate military and political support for Kyiv.

By contrast, Donald Trump has bragged he could end the war in a day, an outcome that realistically pre-supposes Ukrainian capitulation to Moscow.

There are also fears in Europe that Trump will abandon the carefully crafted western sanctions regime that has been steadily tightening on the Russian economy, even if their impact has been less tangible than officials hoped.

Can Europe fill a Trump-shaped vacuum on military support for Kyiv?

The Commission has already made some ambitious moves to boost Europe’s capabilities.

There is the EU Act in Support of Ammunition Production (ASAP) and the European defence industry reinforcement through common procurement (EDIRPA).

The Commission has also launched its first-ever European Defence Industrial Strategy (EDIS) and on the digital side, there is a greater emphasis on cybersecurity, cyber defence and protecting key technology supply chains.

EU and NATO countries have been increasing defence spending, and there are suggestions that the European Commission could raise up to €800 billion in market loans over a seven-year period to boost Europe’s defence industry.

None of these initiatives would shelter Ukraine from an immediate and catastrophic disengagement by the United States.

Starved of military support, the Ukrainian war effort would falter and morale could collapse.

Vladimir Putin has not disavowed his war aims of dismembering, and then subjugating Ukraine.

Whatever about the overall threat to European security from a revanchist Russia, there would be a vast exodus of Ukrainian war refugees that might dwarf the initial post-invasion wave, and they would head in one direction.

The next big threat to Europe posed by Trump 2.0 is trade. Donald Trump has threatened immediate tariffs against Europe of 10% across the board.

Goldman Sachs chief European economist Jari Stehn predicted in August that this would slice 1% off the EU’s GDP and push up inflation.

"Even if such tariffs aren’t ultimately implemented, the sharp increase in trade policy uncertainty would weigh on European growth. Europe’s economy slowed sharply during the 2018-19 Trump trade war, which owed more to the threat of tariffs and uncertainty around their size and scope than to the tariffs themselves," he said.

EU officials have put the damage at €150 billion per year in loss of exports to the US.

This will be painful: the European economy has been stagnating and one mitigating effect has been healthy goods and services exports to the US over the past decade.

Of more concern is the secondary effect. Mr Trump appears to want an all-out trade war with China, imposing tariffs of up to 60pc on all products, and shutting Chinese companies out of key sectors of the US economy, such as AI and semiconductors.

That could mean China dumping products on the European market instead, prompting a knock on trade war with the EU (both sides are already locked in a dispute over Chinese electric vehicles).

Furthermore, Mr Trump could impose secondary tariffs on EU member states that continue to do business with China.

Such a conflict would be more problematic for Europe than the US.

"Unlike the US, the EU has not significantly reduced its trade links with China, particularly for imports," write Aslak Berg and Zach Meyers in a paper for the Centre for European Reform (CER).

"This partly reflects an internal conflict in the EU about how to tackle China. Some member-states see China as a strategic and commercial threat and want stronger action.

"The EU has around 30 million manufacturing jobs, so it now has far more to lose from China’s overcapacities and surging exports than the US does."

While the EU has been calibrating its trade relationship with China, "de-risking" rather than "de-coupling", many member states are embedded in the Chinese economy with joint ventures and outsourcing.

That’s not to say member states do not share US suspicions of China’s ambitions in the digital and security sphere, and again this is where the new Trump administration could cause problems.

While an EU-US trade agreement (known as TTIP) has been moribund since 2016, Brussels and Washington were working closely, under the Biden Administration, through the newly created Trade and Technology Council (TTC) on digital security and AI.

It is by no means clear that Donald Trump will want to continue that work.

This will, again, be damaging for the EU: for Europe to meet its climate and digitalisation goals, it will need the active cooperation of the United States on developing and buying the technologies needed.

Can Europe hit back on tariffs?

Officials are expected to approach the Trump team with an offer of improved trade, well short of a formal trade agreement, in which Europe commits to buying more of particular US goods in return for Mr Trump backing off on tariffs.

If that fails, the European Commission has been working on a list of imports it could hit with a reported 50% tariff or more.

When Donald Trump slapped tariffs on €6.4bn of EU steel and aluminium imports during his first term, Brussels hit back with €2.8 billion in tariffs, targeting Trump’s supporters with duties on bourbon whiskey, Harley-Davidson motorcycles and power boats.

With today’s results showing Trump winning new voters in states across the US, that might be a more difficult prospect.