EU wants to prevent economic war with USA under Trump

After US election

EU wants to prevent economic war with USA under Trump

With Donald Trump at the helm of the USA, the relationship between the states and Europe will change. Can a major trade conflict be averted? The EU is looking for solutions – and money.

The EU is preparing for difficult cooperation with future President Donald Trump after the US election. “The top priority must be to avoid an economic war,” said Austrian Chancellor Karl Nehammer on the sidelines of a summit with his counterparts in Budapest. Negotiations must be clear; rules and mutual incentives are needed to allow investments.

The meeting of the heads of state is therefore about how the competitiveness of European companies can be strengthened, especially against competition from China and the USA. From an EU perspective, both countries give their companies advantages with high subsidies, so that Europe is left behind. The prospect of Trump as the new US president increases the urgency of the debate.

The meeting will discuss things such as strengthening the internal market and how work can be more productive and innovative. Europe’s defense preparedness and the green transformation of the economy will also be discussed.

The basis for the debate was an analysis by the former head of the European Central Bank, Mario Draghi. This shows weaknesses as well as options for action for the community of states – and, above all, a great need for investment. Draghi said in Budapest that there is no doubt that the Trump presidency will significantly change relations between the United States and Europe. Europe has been trying to find a consensus for too long and can no longer postpone decisions.

During the election campaign, Trump announced that he wanted to introduce new tariffs of 10 to 20 percent on imports. For Chinese goods they should even be 60 percent. In doing so, he wants to strengthen the USA as a production location and reduce the current trade deficit. Several economists recently warned that a Trump return to the White House would likely have a negative impact on growth in Europe.

Things could be particularly tough for the German auto industry and its suppliers. For manufacturers such as Volkswagen, BMW and Mercedes-Benz, the USA, together with China, is the most important sales market outside the EU. Special tariffs would likely have significant negative effects.

Luxembourg’s head of government Luc Frieden said in Budapest that we would first have to wait and see what Trump would do. But we will discuss things with America on an equal footing. “We are for fair and free trade. Tariffs are not the best way to achieve that, but if someone introduces something, you have to react.” According to Chancellor Olaf Scholz (SPD), the discussions on competitiveness are of “utmost importance”. You have to be “at the forefront” of innovations and, for example, mobilize capital and drastically reduce bureaucracy. Italian Prime Minister Giorgia Meloni said it’s not about what the US can do, but what Europe can do for itself.

In order to become more competitive and take on China and the USA, you need money above all. It is controversial where exactly this should come from. Both public and private funds would have to be mobilized for necessary investments, according to a draft of the final declaration of the meeting, which is available to the German Press Agency. “We are determined to examine and use all instruments and tools,” write the heads of state and government. This means that the option of taking on new joint debt remains on the table. Germany has so far taken a clear position against it, while other countries are in favor of it. So far, the EU has only taken on such funds on a large scale for the multi-billion dollar Corona recovery fund.

The top politicians agree that the European Investment Bank and the long-term budget of the international community should play an important role. In addition, work should be done to introduce new own funds – this could be, for example, a new tax on crypto currencies.

In order to mobilize more private money, the heads of state and government are also insisting on “urgent progress on the Capital Markets Union”. The planned merger of the European capital markets is essentially about reducing bureaucratic hurdles between the EU states in order to give companies more opportunities to raise money. “In addition, larger capital investments would help secure the EU’s competitiveness in critical technologies,” the leaders write.