The return of Donald Trump to the White House represents a multi-dimensional challenge for Europe, with major implications for transatlantic relations, Europe’s relationship with China, and broader G7 unity.
The return of Donald Trump to the White House represents a multi-dimensional challenge for Europe. Trump is promising to hit European countries with broad-based tariffs, curtail US support for Ukraine, and seek sharp increases in European defense spending. Elon Musk’s support of European far-right parties and an emerging alliance between Trump and US tech firms is likely to further test Europe’s resilience and unity. European leaders are scrambling to minimize the damage. Several have met with Trump since his election victory to warn against a bad peace deal for Ukraine. Meanwhile, the European Commission has prepared a welcome package for the Trump team in the hope of heading off a transatlantic trade conflict. How the standoff plays out will have major implications for transatlantic relations, Europe’s relationship with China, and broader G7 unity in the face of mounting economic and security challenges coming from Beijing.
Déjà vu
“Trade wars are good, and easy to win,” Donald Trump tweeted in March 2018, as he unveiled plans to impose tariffs on US imports of steel and aluminum on national security grounds. Later that month, his administration followed through with tariffs of 25% on steel and 10% on aluminum. The move prompted the European Union to retaliate with tariffs of its own, file a complaint against the US at the WTO, and introduce safeguard measures to shield its own steel producers. The US steel and aluminum tariffs and EU countermeasures would remain in place for the remainder of Trump’s first term, weighing on transatlantic relations. They came against a backdrop of transatlantic sparring on a range of other trade and financial issues, from the long-running subsidies dispute between Airbus and Boeing to EU member state plans to introduce a digital services tax that would hit US tech firms. Trump’s threats to retaliate against the digital tax plans were the inspiration for the EU’s anti-coercion instrument.
Still, threats by the Trump administration to impose tariffs on European cars never came to fruition. During a visit to the White House in July 2018, Jean-Claude Juncker, then president of the European Commission, was able to avert car tariffs and diffuse trade tensions with promises to ramp up purchases of US soybeans and energy products, and by making clear that the EU would retaliate forcefully against any new US tariffs. This seven-year-old episode has provided European leaders with a glimmer of hope as they scramble to prevent a new transatlantic trade conflict under a second Trump administration that they hoped would never come. They have their work cut out for them. During the 2024 US election campaign, Trump promised to impose across-the-board tariffs of 10-20% on all US trading partners except China (which he threatened with even higher tariffs of 60%). Close Trump aides have warned in private and public forums in recent months that Europe is likely to be hit hard. Since his victory in November, Trump has shown few signs of backing down from his threats. Last month, he described trade relations with Europe as a “disgrace” and accused the bloc of refusing to buy any American goods. In reality, US goods exports to the EU hit a record high of $370 billion in 2023. But that did not prevent the US goods trade deficit with the EU from rising to $220 billion in that year, up from about $160 billion in 2017, when Trump’s first term started.
Trump’s grievances against Europe do not end with trade. He has railed against European countries for failing to meet commitments made at a NATO summit in 2014 to increase their defense spending to 2% of GDP. Seven EU countries failed to hit that threshold in 2024, and many more achieved the goal only thanks to a late spending push fueled in part by a desire to avoid Trump’s wrath. A more immediate concern in Europe surrounds Trump’s commitment to Ukraine. He has criticized the outgoing Biden administration for providing billions of dollars in financial and military support for Kyiv, questioned the efficacy of US sanctions against Russia, and promised to end the three-year-old war in a single day. With a war raging on its eastern border, Europe’s reliance on US security guarantees gives Trump significant leverage that is likely to color the EU’s response to any US trade measures.
On top of this, messages from Trump and his entourage over the past weeks suggest Europe may face a more fundamental challenge from the new administration. Trump has expressed a desire to secure US control of Greenland, an autonomous territory of EU member state Denmark, refusing to rule out the use of military force or economic coercion to secure the island. His political ally, advisor, and financial backer Elon Musk has injected himself into European politics by actively supporting the far-right Alternative for Germany (AfD) party in the run-up to a February election and by calling for the resignation of UK Prime Minister Keir Starmer.
Compared to Trump’s first term, the EU enters 2025 in a more vulnerable position. The bloc has barely grown for the past two years and it faces an increasingly aggressive Russia, which is making gains in Ukraine, thanks in part to support from China. However, the EU is also arguably better prepared for Trump than it was eight years ago, when his victory surprised many and his policies and governing style were not well understood. The EU in 2025 is more pragmatic and transactional compared to 2017. To avoid a trade war, safeguard NATO, and ensure that a bad peace deal is not forced on Ukraine, many European countries are prepared to make commitments to the new administration that would have been unthinkable in Trump’s first term.
The EU’s offer to Trump
It is no secret that many EU leaders, including those in the top positions at EU institutions in Brussels, were hoping for a Kamala Harris victory on November 5. But they also set about preparing for their worst-case scenario, creating a dedicated transatlantic taskforce under returning European Commission President Ursula von der Leyen and cobbling together a “welcome package” for the new US president with three main components: trade, China, and security. There have been several high-level meetings between European leaders and Trump since his victory in November, including one with France’s Emmanuel Macron in Paris and with Italy’s Giorgia Meloni at Trump’s Mar-a-Lago retreat in Florida.
While Ukraine was discussed, it is unclear whether Macron and Meloni were able to delve into detail on the tariffs with Trump. Neither has there been a substantive, high-level conversation between the leaders of EU institutions and Trump in recent months, raising questions about whether the Commission has been able to fully present its package to the president-elect and his team before he enters the White House on January 20. Von der Leyen, notably, spent a week in the hospital with severe pneumonia in early January, hindering plans by her team to meet with Trump before his return to the White House.
Though not included in the package, surely one of Trump’s key demands will be an end to an array of EU cases against big US tech firms like Amazon, Apple, Google, Meta, and X that have resulted in investigations and billions of euros in penalties for offenses ranging from unpaid taxes and content moderation failures to anti-trust and data privacy violations. In early January, days after announcing an end to Meta’s third-party fact checking program, founder Mark Zuckerberg made clear that he hoped to enlist Trump’s support in pushing back against European policies that impose stricter limits on his company. The Commission is reportedly reassessing investigations launched last March against Apple, Meta, and Google under its Digital Markets Act (DMA) in a sign that it may consider scaling back those probes. But it will face pressure from member states to enforce rules contained in the DMA and the Digital Services Act, which obliges platforms to police online content or face fines.
Besides the obstacles to an amicable resolution of the transatlantic digital divide, there are two important problems with the EU’s offer. First, the EU has few indications from the incoming US president, or from members of his team, that he is prepared to ditch his tariff pledge in exchange for European concessions. Trump suggested in a social media post in late December that EU purchases of US oil and gas might be enough to avert a trade conflict. But there have been no other public clues about his readiness to negotiate. And given Trump’s history of railing against Europe, it is unlikely that the tariffs are merely an attempt to build up leverage.
Europe’s message that a transatlantic trade conflict would suck EU resources away from China is likely to fall on deaf ears. Many of the officials in Trump’s orbit believe that Europe will be forced to align with the US on China regardless, because of US long-arm measures (for example on export controls) or because the EU will have no other choice than to raise trade barriers once US tariffs are imposed on China, to prevent Chinese exports from being diverted into Europe and decimating European industries.
Second, member states have not endorsed the Commission’s offer. The hope in Brussels is that Berlin, Paris, and other capitals would swing behind it if the Trump team were to signal that it is open to a deal. But elements of the “package” are highly contentious in some European capitals, especially those that involve China policy. The outgoing and (most likely) incoming government in Germany, for example, is opposed to tariffs as a tool to protect European industry against Chinese exports, due to a combination of free-trade fundamentalism and fear of Chinese retaliation. There is also resistance in European member states that produce advanced technologies, for example the Netherlands, to more wide-ranging export controls that would further limit sales to China. Countries like Hungary and Slovakia that have cultivated close ties with China will resist any attempts to condition Chinese investments in Europe or impose restrictions on Chinese technology in connected vehicles.
Three scenarios
We see three main scenarios for how transatlantic relations could develop in 2025, each with different implications for EU policy toward China. We believe the chances are slim that the EU can avert US tariffs altogether. We also believe the Trump administration is likely to take a more targeted and phased-in approach to imposing tariffs on US trading partners (including China) than he promised during the election campaign, out of concern about the impact on the US economy and inflation of a “big bang” approach.
A sharp increase in EU defense spending appears to be baked in. The endgame for Ukraine is much harder to predict, although there have been signs recently that Trump is ready to abandon the unrealistic 24-hour timeline for a peace deal that he floated during the election campaign.
Finally, we believe the likelihood of a détente between the EU and China is low, regardless of how transatlantic relations develop. Trump is likely to increase tariffs on China sharply (even if 60% tariffs from day one look unlikely). This will divert Chinese exports to Europe, forcing Brussels to respond with more robust trade defense measures of its own. That will deepen trade tensions between the EU and China, even if some member states might seek to limit the damage to their economies by sidestepping Brussels and seeking an accommodation with Beijing.
Grand bargain (10% chance)
The best-case scenario for Europe would be Trump embracing a deal with the Commission that leads him to withhold tariffs altogether (or impose tariffs that are far more limited than what he promised during the campaign) in exchange for commitments by EU member states to make significant purchases of US goods, spend more on defense (including support of Ukraine), and toughen up on China.
Under this scenario, a bad peace deal that plays into Russia’s hands and is made over the heads of Kyiv and Europe would be avoided and clashes over election interference and digital policy would be kept under wraps. EU member states would embrace a deal with Trump because it would avert hard-hitting US tariffs and ensure a continued (if diminished) security role for the US in Europe.
This would give European Commission President Ursula von der Leyen leeway to pursue an accelerated de-risking agenda vis á vis China—despite ongoing reluctance among member states, notably on the economic security front. The Commission would make aggressive use of its trade defense tools against China, including the imposition of safeguards and roll out of new cases under the Foreign Subsidies Regulation. The EU would pursue closer alignment with Washington’s own export control regime, and the debate over outbound screening and restricting connected vehicle technology from China would shift into higher gear.
Despite accelerated transatlantic convergence on China policy, coordination between Washington and European capitals would remain bumpy, with the Trump administration showing little patience with Europe and favoring pressure tactics over dialogue, and with threats to impose unilateral measures to force faster EU alignment. Yet coordination would be better than in other scenarios, paving the way for joint action on several fronts.
In contrast, relations between the EU and China would deteriorate quickly, with Beijing retaliating against EU countries and firms with tit-for-tat tariffs, export controls on critical raw materials, the targeting of EU firms in China, and state-sponsored consumer boycotts or targeted investigations.
Managed mess (70% chance)
Our base case scenario foresees Trump re-introducing the steel and aluminum tariffs from his first term and imposing additional tariffs on EU member states that are either targeted or at the low end of expectations.
The EU would almost certainly respond by reimposing its rebalancing tariffs and introducing targeted new tariffs on US products. This tit-for-tat would cast a cloud over transatlantic relations, especially as US tariffs would deepen Europe’s economic woes. But both sides would agree to refrain from further escalation.
In this scenario, one can envision Trump paring back US military and financial support for Ukraine, insisting on a ceasefire and a significant European role in monitoring it. EU countries would be compelled to ramp up defense spending and support for Ukraine. Yet, a complete transatlantic breakdown could be averted if Trump kept Kyiv and European capitals involved in negotiations and committed to ongoing but limited US military support. The EU could take symbolic steps to limit its penalties against US tech firms without fundamental changes to its policies. Elon Musk’s forays into European politics would continue but at a low simmer.
Despite heightened US-EU tensions, we would not see a meaningful improvement in EU-China relations. Instead, a dual-track China policy would emerge. The Commission would continue to push its tough-on-China agenda in areas where it had authority, for example trade defense and level playing field tools. At the same time, divisions over China policy would deepen within the EU, with a group of countries—from Germany, Austria, Hungary, and Slovakia to Spain and Portugal—pushing back against more drastic EU measures and shooting down the EU’s economic security agenda.
In the absence of a US-EU truce, von der Leyen would lack the political capital to push for closer alignment with the US on export controls, outbound screening, and connected vehicles. Individual countries might seek to reduce tensions and preserve economic ties with Beijing as growth concerns mounted, further weakening the Commission’s position and impeding the emergence of an EU consensus on China policy. Against this backdrop, transatlantic cooperation on China would likely become increasingly challenging, with the US resorting to unilateral measures to try to force alignment. Divisions over China and US policy would become a severe test for the EU.
Perfect storm (20% chance)
This scenario foresees a more fundamental breakdown of transatlantic relations driven by wide-ranging US tariffs against Europe, an accelerated withdrawal of US security guarantees and support for Ukraine, and active interference by the Trump administration in European politics.
Within days of taking office, Trump could decide to impose across-the-board tariffs on the EU at the higher end of the 10-20% range promised during the election campaign. He could also reinstate Section 232 steel and aluminum tariffs and threaten to introduce Section 301 tariffs in response to digital services taxes pursued by European member states. The EU could respond with wide-ranging tariffs on US products, setting the stage for a major transatlantic trade war.
Trump could set a tight deadline for ending US military and financial support for Ukraine, insist on a ceasefire that gives Russia control over Ukrainian territory it controls, and refuse to allow US troops to help monitor the ceasefire. Cooperation within NATO and the G7 would become increasingly challenging and transatlantic dialogue on China would break down, with the US increasingly using unilateral measures to try to force EU alignment.
Compounded by continued interference in European politics and policymaking, especially in the digital sphere, anti-US sentiment would spread as Trump was blamed for deepening Europe’s economic woes and poisoning the European political debate. There would be high potential for EU divisions, with member states pursuing different agendas vis à vis the US, Russia, and China. Commission trade defense resources would shift away from China to focus on the US, leaving less capacity to manage economic spillovers from China.
Within the EU, political pushback against tough-on-China policies would spread, leading Brussels to try to dampen down tensions. Although trade and security relations would likely remain strained (with China’s continued support for Russia a major burden on the relationship), the EU could adopt a more transactional approach, looking for a negotiated solution to the rising tide of Chinese imports and ways to bring back a more positive bilateral agenda (like cooperation on the green transition and certain technological fields) in exchange for commitments by Beijing on market access and promises to use its influence with Russia.
Signs that the US and China were pursuing a follow-up to their “phase one” deal could also trigger a more conciliatory EU approach to Beijing. Conversely, deepening economic woes in China resulting from US tariffs could leave Beijing more open to making token concessions to Europe to preserve market access.
European leadership test
The return of Donald Trump presents a massive challenge for Europe’s security, economy, and liberal democratic values that continue to guide policy in the 27-nation bloc—even if they are increasingly under threat. Trump’s second term as president is likely to upset long-held assumptions about the transatlantic relationship, multilateral groupings like the G7 and NATO, and the broader US-led international order that has existed since World War Two.
While we believe transatlantic accommodation is possible, there is a greater likelihood that ties will be characterized by friction and confrontation in the economic and security realms. The more aggressive the Trump administration is with Europe, the greater the risk that divisions within the EU widen, and the greater the temptation will be for Europe—especially its member states—to seek some sort of accommodation with Beijing. We would not rule out a gradual pivot towards a more transactional EU approach to China that leaves the door open to more economic cooperation, for example through managed trade agreements.
Nevertheless, we view the chances of a meaningful EU-China détente as slim. Even in a “perfect storm” for transatlantic relations, the EU will be scrambling to shield itself from Chinese exports diverted to the European market because of a sharp increase in US tariffs on China. Under all three scenarios, the EU could resort to greater trade defense tools to restrict the inflow of Chinese imports and shield European industry in a more systemic way. Other aspects of the EU agenda on China, however, are likely to suffer if transatlantic ties grow increasingly confrontational. For example, the Commission’s economic security agenda—which foresees a more restrictive approach to export controls, inbound and outbound investment screening, and connected vehicles—will face even greater hurdles if the European economy is being hit by US tariffs.
The hit to the European economy is most acute in a “perfect storm” scenario but could also be severe under a “managed mess,” or even under a “grand bargain” if China retaliates forcefully against the EU for working closely with Washington. This would have knock-on effects on EU politics, potentially boosting populist fringe parties, and on EU unity, with member states pursuing their own agendas and undermining EU institutions.
In the past, major disruptions or crises have led to leaps forward in EU integration. However, at a time of increasing polarization, political uncertainty in large member states like Germany and France, and a potential breakdown of the post-war alliance with Washington, will a crisis be sufficient to force policy consensus within the EU and push the bloc toward a collective goal? For this, bolder leadership and vision will be required, particularly in big capitals like Berlin and Paris.
To read the research as it was published on the Rhodium Group website, click here.