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FT readers are sufficiently old to recollect when Joe Biden dedicated lots of of billions of {dollars} in subsidies to inexperienced expertise — and Europe panicked. Up to now week, Donald Trump has undone Biden’s industrial coverage, whereas promising large investments in AI and fossil vitality as an alternative — and Europe is panicking once more. It doesn’t matter what a US president does, it appears, Europeans see an existential disaster.
This could give us some perspective on the “peak pessimism” expressed in Davos. Maybe, simply maybe, it displays European attitudes greater than it does the EU’s goal prospects. That isn’t to disclaim that Trump’s second administration will pose large challenges to the bloc’s financial and geopolitical mannequin. However that mannequin was already ripe for change. It will go well with the EU to be extra entrepreneurial about its fears, and use Trump’s arrival as a supply of alternatives — each to make it simpler to make the adjustments which might be lengthy overdue, and to profit from the self-harm the US is about to inflict on itself.
Begin with commerce. Trump desires to shrink the US trade deficit with the EU. European leaders need to improve funding at dwelling. These wishes quantity to the identical factor. As EU leaders more and more acknowledge, the EU’s commerce surplus can be an enormous financial savings surplus exported to finance investments overseas. The penny must drop: redirecting these financial savings to home investments means forsaking a progress mannequin pushed by export surpluses.
The comprehensible European intuition is to placate Trump and hope to salvage their US market entry. However this intuition is out of date. Study as an alternative from the extra clear-eyed (all the things is relative) technique in the direction of China: de-risk, although not decouple. The possible subsequent German chancellor, Friedrich Merz, rightly warns corporations reliant on China that they must face the dangers of disruption on their very own. The identical mindset might be prolonged to the US.
Then there’s defence. Europeans must spend much more on this — not as a result of the US president says so, however as a result of Russian belligerence threatens their freedom. Trump’s demand to lift defence spending to five per cent of GDP can, nevertheless, be the prod wanted to interrupt by political inertia, by shifting the query from whether or not to spend considerably extra to how.
Within the quick run, this implies extra weapons purchases from US producers — a simple promise to commerce for different favours in Washington. Within the medium run, paradoxically, it might result in the alternative, as European arms producers get the understanding of sustained and better demand — particularly if their governments lastly handle to standardise specs and procure collectively.
Power is subsequent. The EU struggles with excessive vitality costs, and hasn’t managed to give up Russian pipeline oil and liquefied gasoline. Trump would love nothing greater than boosting oil and gasoline gross sales to Europe. The quickest technique to obtain this is able to be to finish the EU’s sanctions in opposition to shopping for Russian fossil fuels — however this requires unanimity, which Russia-friendly member states resist. The good factor to do is request a serving to hand from Trump by declaring that it’s his personal admirers, from Budapest to Bratislava, who stand in the way in which of an even bigger order ebook.
Along with a political springboard to understand current European priorities, Trump’s disruption additionally provides new alternatives to use. If Biden’s subsidies for renewables and inexperienced tech sucked funding from Europe to the US, then right now’s about-face should logically do the alternative. Extra seemingly, these fears had been all the time overdone. However the Maga antipathy for something inexperienced strengthens the case for doubling down on incentives to make extra worthwhile in Europe the decarbonisation investments which have simply turn into much less worthwhile within the US.
Take into consideration immigration, too. For a very long time Europe has bled expertise to the US, and the scarcity of certified workers is a standard grievance from high-tech companies. If Maga America proves too excessive for the world’s younger well-educated employees (and the UK stays neuralgic about immigration), an EU that throws its doorways open might turn into a worldwide pole of attraction. Excessive-skilled immigration schemes that enable motion between EU states, such because the Blue Card initiative, must be enhanced, maybe together with the pan-European authorized framework for modern corporations that European tech has requested for and Brussels has promised to deliver.
Europe ought to heed the phrases of an earlier US president: it has nothing to worry however worry itself. The perfect response to Trumpian aggression is to make use of it to make Europe nice once more.
