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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. Previously 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 might 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 can be lengthy overdue, and to learn 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 wish to enhance funding at residence. These needs quantity to the identical factor. As EU leaders more and more acknowledge, the EU’s commerce surplus can also 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 development 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 However this intuition is out of date.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 (the whole lot 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 may 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 boost defence spending to five per cent of GDP can, nonetheless, be the prod wanted to interrupt by means of 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 may result in the other, as European arms producers get the understanding 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 vitality costs, and hasn’t managed to give up Russian pipeline oil and liquefied fuel. Trump would really like nothing greater than boosting oil and fuel gross sales to Europe. The quickest approach to obtain this may be to finish the EU’s sanctions towards 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 stating that it’s his personal admirers, from Budapest to Bratislava, who stand in the way in which of an even bigger order e book.
Along with a political springboard to understand present European priorities, Trump’s disruption additionally presents new alternatives to take advantage of. If Biden’s subsidies for renewables and inexperienced tech sucked funding from Europe to the US, then in the present day’s about-face should logically do the other. Extra seemingly, these fears had been at all times 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 employees is a typical criticism 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 worldwide pole of attraction. Excessive-skilled immigration schemes that permit motion between EU states, such because the Blue Card initiative, needs to be enhanced, maybe at the side of the pan-European authorized framework for progressive 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 very best response to Trumpian aggression is to make use of it to make Europe nice once more.
