FINANCE & ECONOMICS

Trump 2.0: Tariffs and Economic turbulence for Europe?

Europe faces an uncertain future as a second Trump administration reignites debates on trade and financial relations. This second term could see these measures intensify, targeting key European sectors. Two CBS experts offer valuable insights on how Europe could respond.

By CBS Executive Education

Europe faces an uncertain future as a second Trump administration reignites debates on trade and financial relations. During his first term, the "America First" policy disrupted global trade with tariffs, including a 25% tax on steel and a 10% tax on aluminium imports from the EU and China.

A second term could see these measures intensify, targeting key European sectors such as electric vehicles, pharmaceuticals, and green technologies. Stricter import restrictions and efforts to renegotiate trade agreements in America’s favour could further strain transatlantic ties.

As the EU grapples with its own economic challenges, Trump’s policies risk sparking trade conflicts and deepening global instability.

Two of our CBS experts offer valuable insights on how Europe could respond. Professor Edward Ashbee examines the likelihood of transatlantic trade disputes, the feasibility of a US-EU trade deal, and Europe’s position amid US-China tensions. Assistant Professor Rune Møller Stahl analyses Europe’s industrial policies, innovation strategies, and the potential impact of a trade war on Denmark’s consumers and industries.

"Expect battles, but probably not an all-out fight to the finish."

Professor Edward Ashbee, Department of International Economics, Government and Business

Professor Edward Ashbee, Department of International Economics, Government and Business

Is there likely to be a trade war between the US and the EU?

Even if Trump backs away from his commitment to all-round protectionism, there will be very serious trade skirmishes. We can, at the least, expect targeted tariffs. And it won’t just be the German car industry that is likely to be at the forefront. For example, if the new administration presses ahead in its bid to secure Greenland, Danish firms could be in the firing line. The European chemical, machinery and equipment industries could also be vulnerable. The EU won't of course sit idly by. Having had time to prepare, it will probably respond with a mix of carrots (increasing European purchases of US products or offering cooperation around China) and sticks (imposing tariffs on key US goods). In short, expect battles, but probably not an all-out fight to the finish.

Despite the dangers of transatlantic trade battles, what are the chances of a US-Europe trade deal?

A decade ago, the EU and the US sought to create the gargantuan Transatlantic Trade and Investment Partnership (TTIP) but, even after five years of negotiation, there was still no prospect of agreement. For its part, despite all its talk of protectionism, the first Trump administration held out the promise to the EU of a deal with “no tariffs, no barriers, no subsidies, all together as one package”. Despite the alluring simplicity of this, many Europeans believed that offered, in practice, a “race to the bottom” that would for example threaten the continent’s agricultural sector, health provision and labour standards. Trump 2.0 may well make a repeat offer. After all, although he frequently seems to celebrate tariffs as an end in themselves, he and his team also regard them as a form of leverage so as to secure particular economic or political goals. A simple trade deal is tempting for many of Trump’s backers because it would prise open European markets for US firms. This is however something that the EU could not concede insofar as such a deal would pose an existential threat to the European model.

How can Europe best respond to US-China rivalries?

We should again note Trump’s exceptional unpredictability. He has been unrelenting in lambasting the threats that he claims China poses to the US economy but there have also been inconsistencies. TikTok won a reprieve. Whereas some of Trump’s supporters forcefully back Taiwan, he has been more equivocal. He, after all, almost always believes that there is a deal to be made. The EU is also torn. It has its own concerns about what it sees as trade-distorting Chinese subsidies, but some European countries are now talking in more balanced terms about engagement than a few years ago. If, however, China’s relations with the US deteriorate further under Trump, Beijing will probably go far in making efforts to peel Europe away from the US. If this happens would Europe have the economic might and the political resolve to defy Washington? Maybe but the problem for the continent is that there might well be 27 different answers.

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Globe standing on office table surrounded by cloudy skies to symbolise geopolitical shifts

"Trump, after all, almost always believes that there is a deal to be made."

Professor Edward Ashbee, Department of International Economics, Government and Business

Assistant Professor Rune Møller Stahl, Department of Management, Society and Communication.

How might Europe respond to US tariffs, corporate tax cuts, and industrial policies to protect its competitiveness?

In response, Europe is likely to expand its industrial policies, including offering subsidies to domestic industries. This approach is supported by traditional EU supporters like France and Italy, as well as former sceptics like Denmark and Germany. The goal is to protect European industries and foster innovation, ensuring that Europe remains competitive in the face of external pressures from the US. The EU will aim to avoid a trade war; it may, however, respond to more aggressive US tariffs with retaliatory tariffs or strategic industrial subsidies to safeguard its economic interests.

What could be the potential impacts of industrial and innovation policies in the EU?

The EU’s industrial and innovation policies are being shaped as a response to intensifying global competition, particularly from the US and China. The focus is on bolstering Europe’s industrial base, especially in the tech sector, to close the digital gap with the US. This is being pursued through increased investment in research and development (R&D) and innovation —whether public or private—is still under debate . The scale and financing of these policies will be key to future political discussions.

"Industrial policy is basically good for firms, producers, workers, but bad for consumers."

Assistant Professor Rune Møller Stahl, Department of Management, Society and Communication.

What effects could this have on European consumers?

If the EU goes for protecting domestic industry through tariffs, it will of course mean higher prices on imported goods. Industrial policy is basically a policy that's good for firms, for producers, for workers, but bad for consumers. And of course, this would hit probably the lower part of the income distribution the hardest. People in this group have the highest consumption share of their income and spend a lot on foodstuffs, energy, and imported goods.

What effect would this have from a Danish perspective?

Denmark is under less pressure than other European countries. Our main export industries are not as energy dependent as the Germans, so they haven't had as big of a hit. Especially as our medical exports are less price-sensitive than other natural products. I think our big problem is in the wind sector, and we've already seen problems with investors on the American market, so that might take a big hit. I would say that’s the biggest Danish problem in this context.

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Trump 2.0: Tariffs and Economic turbulence for Europe?

"Expect battles, but probably not an all-out fight to the finish."

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