With Donald Trump being re-elected, European leaders are bracing for a seismic shift in transatlantic relations. French President Emmanuel Macron and German Chancellor Olaf Scholz on Wednesday were swift to pledge a new path forward, stressing the need for a stronger, more self-reliant Europe.
For European policymakers and investors, Trump’s win underscores the urgency of reducing dependency on the U.S., particularly in defence, trade, and industrial policy.
Macron set the tone. “We will work for a more united, stronger, more sovereign Europe in this new context, cooperating with the United States of America while defending our interests and values,” he said, following a phone call with Scholz on Wednesday.
How to handle fallout from tariffs
The immediate impact of Trump’s re-election could be pronounced, with tariffs expected to top his economic agenda. As global trade becomes more fragmented, Europe must streamline its own internal market and seek stronger trade alliances to reduce exposure to U.S. policies, policy experts said.
Browen Maddox, director of Chatham House in the UK, highlighted this risk when speaking with the Press Association. “Tariffs might be one of the first things that Britain will notice under a Trump presidency,” he said, adding that such tariffs in Europe and the UK ”will affect our ability to sell things to the U.S. This doesn’t bode well for the type of economic growth we’re prioritising in Europe.”
Challenges for Germany
For Germany, Europe’s largest economy, the challenges are even starker. Moritz Schularick, president of the Kiel Institute for the World Economy, described Trump’s return as “the beginning of the most difficult economic moment in the history of the Federal Republic of Germany.”
“In addition to the domestic structural crisis, the country now faces massive foreign trade and security policy challenges for which we are not prepared,” he said on LinkedIn.
“In addition to the domestic structural crisis, the country now faces massive foreign trade and security policy challenges for which we are not prepared.”
–Moritz Schularick, Kiel Institute for the World Economy
Schularick believes Germany and France should take the lead on a European defence initiative, arguing that “it was short-sighted and irresponsible to make German security dependent on swing voters in the USA. We need to invest massively in defence capabilities… exempting defence investments from the debt brake to enable geopolitical action.”
The call for economic resilience also resonated with Kevin Verbelen, senior expert in international trade at Agoria, Belgium’s trade association for the technology sector. “The UK is still reeling from Brexit, France is politically deadlocked, and Germany is in turmoil,” he said, warning that Trump “will likely be perceived by many as hostile towards the EU.”
Verbelen argued that Europe’s decentralised structure is insufficient for today’s challenges, urging that “more centralisation at the level of the EU is necessary—from intelligence over defence, industry, economy, to sanctions.”
Potential clash on ESG and clean energy
For investors, Trump’s re-election brings both opportunities and risks. Tina Fordham of Fordham Global Foresight noted a likely market boost: “The short-term implications are clear and largely market-positive; a Trump victory boosts equity markets, as U.S. corporates will benefit from lower taxes.” However, she cautioned that it could complicate U.S. alliances with Europe and undermine the ESG and clean energy agendas, creating a potential clash between U.S. policies and European priorities.
Meanwhile, Europe’s single market has come under renewed scrutiny. The Draghi report has highlighted the EU’s own internal barriers as costly inefficiencies, with estimates suggesting up to 10 percent of economic output lost to regulatory fragmentation. According to a recent IMF analysis, trade costs within Europe’s industrial sector are equivalent to a 44 percent tariff, whereas the trade costs between U.S. states are only about 15 percent. In Europe’s service sectors, these trade costs rise even higher, reaching up to 110 percent.
Completing the single market
Completing the single market could prove the EU’s most effective buffer against external pressures, reducing reliance on any one trading partner. Furthermore, as global trade becomes more fragmented, European leaders are expected to prioritise strategic trade agreements with reliable partners to counterbalance Trump’s protectionist tendencies and strengthen supply chains in critical sectors, from technology to green energy.
“The Atlantic alliance is shaking for another decade to come. Europe either acts now or it lets others determine what future the EU has in the remainder of the 21st century.”
–Kevin Verbelen, Agoria
”Externally, we should not forget that we are not on our own. Canada, Switzerland, UK, Japan, Korea, Indonesia, Thailand, Colombia… They all face the same geopolitical outset as we do,” said Verbelen on LinkedIn. ”Do we need to rethink existing structures of international cooperation? Yes, but others also work together within and outside those existing structures.”
”In short, we now know that the Atlantic alliance is shaking for another decade to come. Europe either acts now or it lets others determine what future the EU has in the remainder of the 21st century,” he said.
Further reading on Investment Officer Luxembourg:
- Financial markets react nervously to Trump victory and Red Sweep
- An autonomous EU would create a new framework for investors
- A rerun of the 1970s requires a profound rethink