As the world anticipates the return of Donald Trump to the White House, the European Union (“EU”) braces for significant impacts in various sectors. The first Trump administration’s approach to transatlantic relations was characterized by unpredictability, tariffs on imported goods, a strained NATO relationship, and withdrawal from the Iran nuclear deal and the Paris climate agreement. If past is prologue, the EU must prepare for a renewed era of uncertainty and potential adversarial policies.

Trade Relations

Trump’s self-proclaimed identity as a “tariff man” suggests that trade policies would once again be at the forefront of his administration’s priorities. His campaign promises, which include imposing global tariffs on all goods from all countries in the range of 10 % to 20%, signal a departure from traditional U.S. trade policies. Such measures could have severe repercussions for the EU, both directly through increased tariffs on its exports and indirectly via an influx of dumped products from other affected nations, particularly China. Broad-based tariffs of this nature would likely provoke retaliatory measures from the EU.

The EU’s response toolkit would likely mirror many of the actions it employed between 2018 and 2020 in reaction to U.S. tariffs imposed during the first Trump administration. These measures would include retaliation on U.S. products to maximize political pressure by targeting Trump-supporting constituencies, pursuing chosen legal challenges against the U.S. at the World Trade Organization, and implementing safeguards to shield the EU market from an influx of Chinese and other diverted goods following U.S. tariff hikes. Very practically, the EU has suspended tariffs on US exports of steel and aluminum to its market worth €2.8 billion. The suspension expires on 1 March 2025, requiring an active decision on whether to reintroduce them or not.

In executing these measures, the EU is expected to collaborate with allies such as the UK, Canada, Japan, Australia, and South Korea to amplify its response. The EU may also explore smaller trade agreements or informal “packages” with the U.S. as part of a negotiated tariff truce. Broader protective measures could also be pursued, focusing on subsidies and industrial policies aimed at strengthening Europe’s strategic sectors, beyond actions specific to the U.S. Some cooperation with the U.S. on China may also be possible in areas like export control, investment control, and dual-use technologies.

Defense and NATO Dynamics

A second Trump administration would likely bring renewed scrutiny to NATO, with Trump continuing to press Member States to increase their defense contributions. This pressure could drive EU legislative initiatives such as the development of an internal market for the defense industry, increased production of advanced technologies, and joint procurements could gain momentum. This could include increasing the production of advanced technologies and ammunition in Europe, complemented by new funding sources from the EU’s Multi-Annual Financial Framework and increased national budgets. The EU’s strategic autonomy in defense matters might also see accelerated progress, with greater cooperation between national defense ministries, NATO, and the EU institutions. However, the challenge lies in balancing these EU-wide efforts with NATO priorities to ensure coherence and avoid the duplication of resources.

Climate and Environmental Policies

Trump’s well-documented skepticism about climate change and opposition to the European Green Deal signal a likely domestic rollback of environmental regulations, withdrawal from international climate agreements, and increased support for fossil fuel production. This shift would pose a significant challenge for the EU, a leader in global climate action, as it risks losing a key ally in advancing international climate negotiations. A potential U.S. withdrawal from the Paris Agreement under the second Trump administration would create a leadership vacuum on the global stage. To address this, the EU would likely need to intensify its efforts, forging new alliances with climate-committed nations such as Canada, Japan, and Australia to sustain momentum in tackling climate change.

However, the EU has also seen a rightward shift in its political landscape following the recent elections, and the appetite for green policies appears to have waned. President von der Leyen remains committed to her flagship environmental achievements. However, she has signaled plans to consolidate various ESG reporting obligations into a single “omnibus” regulation, aiming to simplify the growing compliance burden on companies.

Technological and Digital Policies

The technology sector is also likely to experience turbulence under the second Trump administration. The America First agenda would likely lead to further decoupling of the U.S. economy from China, with implications for global tech supply chains.

Under President Biden, transatlantic relations have been strong, fostering a pro-innovation climate at home, and bolstering Europe’s reliance on the U.S. partnership. A Trump presidency, while potentially maintaining some innovation-friendly policies, might deprioritize high-level transatlantic collaboration. Platforms like the U.S.-EU Trade and Technology Council (“TTC”) could be relegated to lower-tier technical working groups, but are very unlikely to survive on a political level. This reduced engagement would leave the EU to shoulder more of the burden in shaping global tech policy, highlighting the fragile balance between its political ambitions and economic imperatives.

Without the collaborative framework of the TTC, the EU may also have to navigate its tech policy landscape independently, potentially seeking partnerships with other like-minded nations such as the UK. (Were the U.S-EU TTC to discontinue, a UK-EU TTC may very well arise in its place, as Britain has sought to join this format over the past several years.) Within Europe, the implementation of the AI Act or the Digital Markets Act would continue, but the U.S.’s absence from the debate could slow progress on shared global standards and regulatory alignment. The EU may continue to hope for autonomy and tech sovereignty, but it will face the harsh reality of a potential trade-off between these political impulses and the economic objectives of prosperity and competitiveness.

Conclusion

In responding to the second Trump administration, the EU will need to address internal political challenges, since the Commission may face resistance from Member States. It will also need to address economic challenges, given the bleak economic prospects that have pushed the issues of industrial competitiveness and public deficit at the top of the agendas. Considering the complex interplay within and among the EU Member States, Commission, and Parliament, businesses will need to monitor closely the policy proposals and debates of the coming year. Covington’s global Public Policy team can assist in engaging effectively and strategically with key political stakeholders, both at the EU and Member State level.

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