Trump’s tariff war empowers Europe’s free traders

BRUSSELS — It turns out that Donald Trump might be the best thing to happen to free trade — for Europe, at least. 

By throwing up a tariff wall around the United States in support of his America-first agenda, the U.S. president is inadvertently prompting other countries around the world to team up in a bid to offset the huge hit to their exports that it will inflict.

The EU, under pressure from a more protectionist France and international climate protests, had sought over the last five years to use trade policy to project the bloc’s values on human rights and sustainability — frustrating partners like India, Indonesia or the South American Mercosur bloc. 

But now that the United States, its historic ally, wants to play solo — and is convulsing global markets and trade networks with its barrage of duties — the European Union is being quick to step up and cast itself as the heavyweight liberal trade bloc that is open for business.

European Commission President Ursula von der Leyen said many countries were now reaching out to Brussels as a reliable partner that would not “change their minds overnight.”

“In a more and more unpredictable global environment, countries are lining up to work with us,” she said in comments to POLITICO Europe on the 10th anniversary of its launch.

This shifting momentum is delighting the EU’s more economically liberal countries who have often chafed at the more protectionist instincts of the French.

“We have the free-traders, Sweden, Nordic, Baltic countries. We have some protectionist countries. And then we have some swing states in the middle. And a lot of those swing states are actually moving in our direction,” Swedish Trade Minister Benjamin Dousa told POLITICO on the margins of a recent meeting of EU trade ministers in Luxembourg. 

“There is a sense of urgency among member states that we have to open new trade routes, we have to sign new free trade agreements,” he said.

Trump’s tariffs — of 10 percent on most countries, 145 percent on China, and 25 percent on steel, aluminum and autos are expected to knock 3 percentage points this year off global merchandise trade. 

The World Trade Organization now forecasts that global trade will shrink by 0.2 percent this year. It could slump by as much as 1.5 percent if Trump reinstates the higher “reciprocal” tariffs — for the EU of 20 percent — that he has suspended for 90 days to allow time to negotiate trade deals.

Moving up a gear

Since being confirmed in December, von der Leyen’s second European Commission, which handles trade policy on behalf of the bloc’s 27 members, has been on a deal-making roll. 

Brussels has concluded decades-long talks with the Mercosur bloc, as well as with Mexico and Switzerland. It has also relaunched negotiations with Malaysia and opened discussions with the United Arab Emirates.

Von der Leyen has pledged to wrap up a hard-to-get FTA with India this year, and is eager to explore “closer cooperation” with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free-trade deal which includes a dozen countries from the Indo-Pacific and recently added the U.K. as a member.

And Australia’s May 3 general election could fire the starting gun on a new push for a trade deal after talks collapsed at the finishing line in late 2023.

“Trump’s policy will lead everyone to agree to develop trade relationships with the rest of the world and therefore also further increase the number of free-trade agreements,” said Jean-Luc Demarty, who headed the Commission’s trade department during the first Trump administration.

Overall, EU countries such as France, Belgium or Austria, which once dragged their feet on opening up their sensitive markets, are starting to see deals as a geopolitical necessity — not just an economic bonus. 

A case in point is France, whose entire political class had rejected the EU-Mercosur trade deal as politically and economically toxic, but which is now quietly softening its stance in light of Trump’s trade offensive. 

“It doesn’t make sense to remain fixated on Mercosur, which was negotiated on good terms overall,” said Marie-Pierre Vedrenne, a liberal member of the European Parliament who hails from the same Modem party as Prime Minister François Bayrou. 

“We need to change our mindset, otherwise we’ll miss out on the advancement of the world,” she added.

The transatlantic trade relationship is Europe’s biggest, with two-way commerce totaling €1.6 trillion. The U.K., China and Switzerland come next. Although the EU and China have explored whether to reset their ties in light of Trump’s tariffs, a trade deal isn’t in the cards — and that’s leading the EU to cast its net more widely.

A change in attitude

For EU officials familiar with Trump’s playbook, the shift gives an impression of déjà vu.

When Trump took office in 2017, the European Union had just emerged from a “great, grotesque saga about Canada,” said Demarty, remembering how Belgium’s Wallonia region for months held up ratification of the Comprehensive Economic and Trade Agreement, or CETA, between Canada and the EU.

At the time, “we had felt a change in attitude towards trade,” he said. 

“And from the moment Trump became very hostile to trade, those who were much less enthusiastic about trade — out of hostility to Trump — tended to soften their stance,” he added. 

But for all the short-term relief for the bloc’s free-traders, that doesn’t mean the path to free trade deals will get any easier — at least not yet.

A huge worry is that Trump’s tariffs might cause Chinese exports that have been locked out of the U.S. market to be diverted to Europe. That scenario is leading to calls for greater protection around the EU’s single market.

And even though Trump rekindled hopes that the transatlantic trade fight could reach a happy ending when Italian Prime Minister Giorgia Meloni visited the White House last week, a far-reaching trade deal is not in the cards.

That’s something Germany’s next chancellor, Friedrich Merz, has been pushing for, adamant that the “best thing” Europe could do with Washington is to achieve zero tariffs. 

Since talks on the controversial Transatlantic Trade and Investment Partnership (TTIP) fell apart in 2016, the European Union has boosted its own environmental and human rights standards. And even if it softened or delayed key aspects of its green agenda, that wouldn’t be enough to satisfy the business-first administration in Washington. 

For Demarty, reviving that transatlantic deal would be a “grave mistake.” 

“It’s not going to go anywhere. I was conducting it for over four years and I found it was an impossible negotiation,” he said.

Nicholas Vinocur contributed reporting. Graphics by Lucia Mackenzie and Giovanna Coi.