The Finder | Our monthly Insights | Issue 15 – March, 2025

Issue 15 – March, 2025

The Finder | Our monthly Insights | Issue 15 – March, 2025

EU Defence, trade and competitiveness in light of the new US administration’s evolving approach to global affairs

In the current public debate across the Old Continent, there is broad consensus that the election of Donald Trump to a second term as President of the United States marks a turning point for the European Union. The new US positioning, particularly on Ukraine, Europe’s military spending and trade, is starting to be actually felt and is causing reactions both in Europe and around the world. However, not only it is too early to predict what the consequences of Trump’s presidency will be for Europe, but it also remains uncertain whether the EU will appear stronger or weaker in the medium term.

On the one hand, some authoritative voices, such as Jean Pisani-Ferry, have warned that Trumpism could fatally undermine European integration if governments do not stand firm in defending the EU’s rule-based system. Some have even argued that the new US administration poses a threat to European democracy. On the other hand, renown commentators such as FT’s Gideon Rachman have argued that Trump’s presidency has provided the strongest impetus for European integration since the end of the Cold War. The FT commentator also stressed that several European leaders acknowledge that Trump’s America poses a threat, although most of them refrain from saying so openly for diplomatic reasons. He also highlighted the extent to which the transatlantic alliance has made Europe dependent on American military assistance.

Although Trump is struggling to secure a quick ceasefire in Ukraine, the US decision to open a dialogue with Russia has also triggered other reactions, including the formation of a ‘Coalition of the Willing’ involving several EU leaders to both determine which security assurances European countries can provide for Kiev and consider sending peacekeepers to Ukraine. The EU and the UK are also said to be working with Ukraine on a peace treaty which they would then present to the US. In addition, a recent Eurobarometer found that 74% of EU citizens believe that their respective member state benefits from being part of the EU, whilst 66% want the EU to play a greater role in protecting them from global crises and security threats. 

Notwithstanding these positive findings, Europe’s future is not as straightforward as it might seem. Indeed, on the 19th of March, the European Commission published the White Paper on European Defence and the ReArm Europe Plan/Readiness 2030. The ReArm Europe Plan/Readiness 2030 aims to improve pan-European defence capabilities through additional financial resources, while the White Paper outlines a new defence strategy and identifies the necessary investments. Accordingly, President von der Leyen proposed a €150 billion fund to support pan-European defence priorities such as air defence, missiles and drones. The European Commission also proposed a targeted relaxation of fiscal rules to mobilise up to additional €650 billion to become more militarily independent. “450 million European Union citizens should not have to depend on 340 million Americans to defend ourselves against 140 million Russians, who cannot defeat 38 million Ukrainians,” European Defence Commissioner Andrius Kubilius said.

However, some questions are beginning to emerge, such as those raised by Italy’s Prime Minister Giorgia Meloni, who stated that EU defence should include “operability, essential services, energy infrastructures, supply chains: all the things that are not simply done with weapons”, and by Spain’s Prime Minister Pedro Sánchez, who called for the creation of a European army as it would be more cost-effective and ensure that “not a single cent” is taken from social spending. A similar public debate is taking place in France, where Macron’s advocacy for increasing the military budget without augmenting taxes has raised concerns about possible future cuts to social programmes. 

Some criticism about an increasing Europe’s defence spending has come from the Netherlands, where a prominent Dutch politician has warned that Europe’s heavy borrowing to expand its defence industry could lead to a new debt crisis, especially if the EU decides to borrow jointly through Eurobonds. This last question provoked a series of reactions, with EU Defence Commissioner Kubilius stating in an interview that the EU was not ready for Eurobonds to boost its defence spending. In contrast, Germany’s incoming coalition government is united in a bold effort to strengthen the EU’s security capabilities, but remains divided on how to address the challenge of its own indecision, according to a draft coalition agreement.

Beyond the question of defence, on the 2nd of April, the 25% tariffs on automotive imports will become effective, sparkling some anxiety not only in Europe, but also in the US, where some government advisers have warned of the potential negative economic impacts of the tariffs for the United States, as well. In this context, President Von der Leyen declared that the European Union would protect its interests as US tariffs are about to enter into force, stating that “the EU will continue to seek negotiated solutions, while safeguarding its economic interests. […] As a major trading power and a strong community of 27 Member States, we will jointly protect our workers, businesses and consumers across our European Union”.

In fact, the European Commission is in the process of formulating its response, taking into account the instruments at its disposal, whilst trade tensions between Brussels and Washington continue to rise. Indeed, the EU executive may be considering a major escalation by targeting the US services sector and potentially restricting intellectual property rights for American companies operating in the EU. For example, the EU could prevent companies such as Apple and Google from charging for cloud storage services or operating system updates. There are also ongoing discussions on banning Elon Musk’s Starlink satellite network from bidding for European government contracts. These possible reactions could be taken into consideration as, in terms of trade, the EU has a significant goods surplus with the US, amounting to €157 billion in 2023, meaning that the Old Continent exports more to the US than it imports. In terms of services, however, the US maintained a surplus, which shifted the balance to a €109 billion gain for the EU.

The tensions between the two transatlantic rivals have even raised the question of whether Europe should draw closer to China, which has often welcomed a more “strategically independent” Europe. Indeed, despite being under fire for the current corruption scandal in Europe, Beijing would favourably view a closer EU-China relationship. Not coincidentally, at the Munich Security Conference last month, Chinese Foreign Minister Wang Yi said that “China has always seen Europe as an important pole in the multipolar world. The two sides are partners, not rivals”. Moreover, against the backdrop of tense trade negotiations with the United States, EU Trade Commissioner Maroš Šefčovič visited China for the first time since taking office held talks on 27th and 28th of March with Chinese Vice Premier He Lifeng, Customs Minister Sun Meijun and Commerce Minister Wang Wentao.

Given this context, it is also clear that the competitiveness of the EU economy will be shaped not only by domestic efforts but also by external factors. Indeed, the EU will be forced to adopt a comprehensive strategy and engage in numerous high-stakes international negotiations, often interlinked. The European Commission’s launch of the Competitiveness Compass, the Omnibus Package and the Clean Industrial Deal is a clear sign that the new legislature will focus on the issue of EU competitiveness. However, Europe will be successful only if it can address not only the challenges highlighted in the Letta and Draghi reports, but also those deriving from the developments in the international arena.

On how the EU should respond to Trump’s approach to Europe, an ECFR Policy Brief argues that, faced with an assertive Trump administration, Europe must recognise the strategic assets it holds as deterrents. Across trade, technology, infrastructure, finance and people-to-people relations, the EU and its partners possess significant leverage. The author pointed out that EU policymakers should carefully assess the advantages and risks of using these assets to counter potential US coercion. To safeguard its interests, the EU must invest in a robust economic deterrence framework. Strengthening its existing anti-coercion instrument will be crucial in mitigating economic and political pressure. Indeed, a well-prepared Europe can better navigate transatlantic tensions whilst preserving its strategic autonomy.

Whereas, on the question of strengthening Europe’s defence industrial capacities, a Clingendael Policy Brief highlights that, to sustain military support for Ukraine, air and missile defence must be the highest priority due to Russia’s extensive use of drones and missiles. Europe’s defence-industrial priorities should align with NATO’s collective defence requirements to enhance self-reliance. As a result, according to the authors, a Defence Industrial Action Plan is essential to strengthen the European defence technological and industrial base, focusing on long-term contracts, resource access and skilled labour. All financing options should be considered to boost Europe’s military capabilities, the authors argue. These include raising the budget ceiling in the next Multiannual Financial Framework, EU borrowing and an intergovernmental format allowing UK participation. A strategic and well-funded approach will ensure Europe’s defence readiness.

On a similar note, a Finabel Publication evaluates the reliability of Euro-Atlantic nuclear deterrence amid 21st-century geopolitical and technological challenges. Russia’s ‘escalate to de-escalate’ doctrine and nuclear triad modernisation threaten NATO’s deterrent effectiveness. Meanwhile, China’s rapid military growth and closer strategic ties with Russia further complicate the security landscape. The authors also maintain that emerging technologies such as hypersonic missiles and artificial intelligence (AI) introduce new risks to nuclear command, control and communication (NC3) systems, thus raising concerns over decision-making and potential miscalculations. To address these threats, NATO must modernise its nuclear capabilities, enhance transatlantic coordination and reinforce arms control and diplomacy. By integrating conventional, nuclear and hybrid strategies, NATO can maintain its role in ensuring global security and stability.

Whereas, on the question of global economic interdependence, a Project Syndicate Commentary stresses that, whilst using global economic choke points to further national interests is preferable to military action, it does not come without consequences. Relying on economic interdependence as a leverage tool can create instability and long-term risks. Over time, the very dependencies being exploited may erode, ultimately harming all parties involved, the author remarks. Such tactics can undermine trust, disrupt markets and weaken global economic resilience. A more sustainable approach would balance strategic advantage with economic stability. Thoughtful policymaking is essential to prevent unintended fallout from weaponising interdependence.

On the question of tariffs and EU monetary policies, a CEPS Study delves into the possible significant implications that US tariffs could have for the euro-area economy and monetary policy. Without exchange rate adjustments, the authors state, US import tariffs are likely to drive up inflation in the US whilst exerting disinflationary and contractionary effects on its trading partners. If the US dollar appreciates, it could offset domestic inflationary pressures but transfer them to the rest of the world, albeit at a slower pace. Trade policy uncertainty itself, even without actual tariffs, is likely to dampen investment and economic activity globally. The economic impact will depend on the scope of tariffs, the extent of retaliatory measures and exchange rate movements, which are influenced by multiple factors beyond trade policy, the authors highlight. Should the US impose broad and sustained tariffs on EU imports without full dollar appreciation, euro-area demand and output may decline, requiring careful ECB monitoring. To maintain price stability, the ECB must remain vigilant to both inflationary and deflationary risks and adjust monetary policy accordingly.

Going back to the issues of EU economy’s competitiveness and of raw materials, a SWP Commentary analysed the EU-Serbia strategic raw materials partnership started in July 2024, which, according to the author, is marking a key step for the EU in diversifying supply chains and strengthening regional economic ties. Former Serbian President Aleksandar Vučić viewed this cooperation as a geopolitical opportunity to further consolidate his domestic power. However, the agreement has sparked large-scale protests in Serbia, with critics warning that it could weaken already fragile rule-of-law structures and undermine environmental and social standards. The situation highlights the EU’s limited ability to influence Serbia’s authoritarian government amid geopolitical tensions. Nevertheless, the EU must strategically apply its leverage to address these risks. To this end, the analysis concludes, careful management of the partnership is crucial to ensuring that it does not contribute to democratic backsliding in Serbia.

On the political evolution of European politics and the EU decision-making progress, an Ifri Publication observed that the potential shift in the German chancellorship from Olaf Scholz of the Social Democratic Party to Friedrich Merz of the Christian Democratic Union following the February 23rd election, could lead to a reduction in Germany’s defence commitments and military aid to Ukraine. At the same time, Germany is preoccupied with internal challenges, limiting its capacity to fulfil its traditional role as a mediator between the United States and the EU. France’s budgetary constraints further hinder its ability to lead in diplomatic negotiations or defence matters. Additionally, several EU member states, including Hungary, Italy, and Slovakia are governed by populist or far-right parties, creating a leadership vacuum that complicates collective decision-making. While EU institutions such as the European Council and the Polish presidency can provide stability, they cannot fully replace national leadership. To achieve its goals in defence and ecological transition, the EU must address its economic competitiveness deficit, although internal divisions and divergent priorities make it difficult to formulate a unified strategy in the face of China and the US under Trump, the author concludes.

Tackling the questions of democratic backsliding and the rule of law across Europe, a CER Insight argues that the rule of law is a core value of the EU that has significantly deteriorated in several member states, most notably Hungary and Poland. Under Prime Minister Viktor Orbán, Hungary has witnessed a systematic erosion of judicial independence, media freedoms and civil society, with power becoming increasingly concentrated in the government’s hands, the author underlined. Similarly, Poland’s Law and Justice party, in power from 2015 to 2023, politicised the judiciary, passed unconstitutional laws and seized control of the public broadcaster whilst launching smear campaigns against critics. The author also stated that these declines in the rule of law have broad implications, undermining the EU’s single market and its legal and security frameworks, which rely on trust and transparency. In response, the EU has implemented rule of law conditionality, linking access to EU funds to the maintenance of democratic principles. The author concluded that this approach aims to protect the integrity of the Union and encourage member states to uphold fundamental values.

On a different but equally important note, an ECDPM Commentary maintains that a potential overhaul of the EU’s external financing instruments in the next multiannual financial framework (MFF) requires careful consideration, offering both opportunities and challenges. In a period of uncertainty for Europe and global cooperation, any changes must be approached with both caution and ambition. However, the real challenge may not lie in the instruments themselves, but in achieving consensus on the overarching policy direction they should support, the authors point out. Ensuring clarity on the EU’s strategic goals and how its institutions implement these changes will be crucial. Without alignment on these fundamental issues, even well-designed instruments may fall short of their intended impact. A steady, collaborative approach is essential to navigating these complexities, the analysis concludes.

This editorial is authored by Massimiliano Gobbato, Communications Director. Contributions by PubAffairs Communications Team’s Nicole Finucci, Kristina Vilenica and Jacopo Bosica to the drafting of ‘The Finder’ are gratefully acknowledged.

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