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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. Prior to now week, Donald Trump has undone Biden’s industrial coverage, whereas promising big investments in AI and fossil power 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’s not to disclaim that Trump’s second administration will pose big challenges to the bloc’s financial and geopolitical mannequin. However that mannequin was already ripe for change. It could 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 are lengthy overdue, and to profit from the self-harm the US is about to inflict on itself.
Begin with commerce. Trump needs to shrink the US trade deficit with the EU. European leaders need to improve funding at house. These needs 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 abandoning 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 However this intuition is out of date.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 direction of China: de-risk, although not decouple. The possible subsequent German chancellor, Friedrich Merz, rightly warns firms 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 may be 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 via political inertia, by shifting the query from whether or not to spend considerably extra to how.
Within the brief run, this implies extra weapons purchases from US producers — a straightforward promise to commerce for different favours in Washington. Within the medium run, paradoxically, it may result in the other, as European arms producers get the knowledge of sustained and better demand — particularly if their governments lastly handle to standardise specs and procure collectively.
Vitality is subsequent. The EU struggles with excessive power costs, and hasn’t managed to give up Russian pipeline oil and liquefied fuel. Trump would love nothing greater than boosting oil and fuel gross sales to Europe. The quickest technique to obtain this could 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 sensible 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 best way of a much bigger order ebook.
Along with a political springboard to understand current European priorities, Trump’s disruption additionally affords new alternatives to take advantage of. If Biden’s subsidies for renewables and inexperienced tech sucked funding from Europe to the US, then right this moment’s about-face should logically do the other. Extra doubtless, 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 change 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 staff (and the UK stays neuralgic about immigration), an EU that throws its doorways open may change into a world pole of attraction. Excessive-skilled immigration schemes that permit motion between EU states, such because the Blue Card initiative, ought to be enhanced, maybe together with the pan-European authorized framework for progressive firms 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 most effective response to Trumpian aggression is to make use of it to make Europe nice once more.
