In the wake of Donald Trump’s re-election, leaders across the European Union are facing a familiar challenge: balancing transatlantic relations with the economic and political realities of a revived “America First” policy. EU officials and heads of state met in Budapest on November 7, 2024 to outline a new framework for the bloc’s economic competitiveness amid a climate of mounting protectionism from the United States. The summit discussions highlighted not only a response to expected U.S. trade policies but also urgent strategies to counter Europe’s stagnating growth and productivity.
Meeting of the European Political Community, 7 November 2024
On November 7, 2024, the European Political Community convened its fifth meeting in Budapest, Hungary, bringing together 42 European leaders, including 24 EU member states, and representatives from the UK, Türkiye, Ukraine, and several other non-EU countries. Discussions focused on Europe’s pressing security concerns, especially in light of Russia’s ongoing aggression in Ukraine, the escalation in the Middle East, irregular migration, and economic security challenges across energy, transport, IT, and global trade. Leaders also discussed the implications of recent U.S. elections for EU-U.S. relations. The European Political Community, represented by European Council President Charles Michel, aims to foster political dialogue, cooperation, and security across Europe without replacing existing organizations. The European Political Community previously met on October 6, 2022; June 1, 2023; October 5, 2023; and July 18, 2024, with upcoming meetings planned for Albania and Denmark in 2025.
A Call for Competitiveness and Reform
During the Budapest summit, EU leaders, including European Commission President Ursula von der Leyen, emphasized that fostering competitiveness and reducing internal bureaucratic hurdles must be top priorities. They acknowledged that Europe’s current economic framework includes excessive regulation, which stifles innovation, especially for startups. Von der Leyen outlined a proposal for a “single rulebook” for new businesses across the EU, which would streamline regulations and foster a conducive environment for growth and investment.
Addressing the stark disparities in energy costs between the U.S. and the EU was another focal point. Von der Leyen noted that Europe’s high energy prices place businesses at a disadvantage, hampering economic vitality. Proposed measures to bring down energy costs align with the EU’s goals to achieve economic resilience, a crucial step as the bloc braces for anticipated U.S. tariffs and trade barriers.
Trump’s Trade Policies and Their Impact on Europe
Trump’s protectionist policies have historically created tensions with the EU, especially his push for the bloc to “pay a big price” for insufficient U.S. imports. The economic implications of this rhetoric are troubling for European leaders, many of whom fear that the U.S. president’s re-election could signal a new era of economic nationalism and reduced transatlantic cooperation. Trump’s re-election also raised concerns about EU contributions to NATO and financial support for Ukraine, with the U.S. president favoring a reduction in American military commitments abroad.
Hungary’s Prime Minister Viktor Orbán, a known Trump ally, spoke out in favor of Europe enhancing its competitiveness in the face of U.S. policies, reframing the issue as a pragmatic necessity rather than an ideological divide. Italy’s Prime Minister Giorgia Meloni echoed this sentiment, emphasizing that Europe must take control of its destiny by strengthening its internal economic structure and looking beyond reliance on U.S. support.
The Draghi Report: A Pathway for European Revival
At the summit, former Italian Prime Minister Mario Draghi presented a comprehensive report that laid bare the stark economic challenges facing the EU. Draghi warned of a “slow and agonizing decline” if Europe fails to take decisive action. His report underscored the need for an additional €800 billion in annual investment to revitalize the European economy, amounting to about 5% of the bloc’s GDP. This investment would support sectors crucial for growth, including defense, biotechnology, and artificial intelligence, which could serve as economic counterweights to the U.S.
Draghi’s call for increased common borrowing to fund these investments remains contentious. Countries such as Germany and the Netherlands have traditionally resisted such measures, favoring fiscal conservatism. Nonetheless, Draghi insisted that a “true single capital market” is essential to mobilize investment and strengthen Europe’s economic backbone. His proposals struck a chord with EU leaders, who approved a “new European competitiveness deal” that aims to simplify regulations, foster innovation, and explore new financing options to kick-start economic growth.
EU’s Readiness for Potential Trade Wars
As Trump’s administration pivots towards protectionism, European leaders are mindful of the potential for an economic showdown. German Chancellor Olaf Scholz asserted that while the EU would negotiate with the U.S., it has the capabilities to withstand economic pressure if necessary. Scholz’s message was a call for caution, underscoring the importance of dialogue while preparing for any economic challenges posed by a more isolationist U.S.
Ursula von der Leyen reiterated that the EU’s approach to transatlantic relations under Trump’s leadership would prioritize engagement on shared interests. She acknowledged that Europe must be prepared for policy shifts that could harm European industries and exports, particularly if Trump pursues a strategy of leveraging tariffs against Europe’s powerhouse economies.
Winners and Losers in the EU Post-Election
Trump’s re-election has been met with mixed reactions among Europe’s political leaders. Notably, Orbán and Italy’s Deputy Prime Minister Matteo Salvini praised the outcome, viewing it as a political victory that aligns with their views on migration and national sovereignty. Their enthusiasm reflects a broader alignment with Trump’s populist rhetoric and skepticism toward multilateralism. Political analysts, however, caution that Trump’s “America First” agenda is ultimately focused on U.S. interests, which may not translate into favorable outcomes for his European allies.
For populist leaders like Orbán, Trump’s re-election elevates his profile as a key European interlocutor. Hungary stands to gain diplomatically from its closer ties to the Trump administration, although experts warn that increased tariffs on German industries could have a ripple effect on Hungary’s economy. Meanwhile, other EU leaders, including France’s President Emmanuel Macron, have adopted a pragmatic stance, emphasizing Europe’s need to protect its own interests.
Implications for European Defense and Security
A significant concern following Trump’s victory is its potential impact on European security and NATO’s future. Trump’s calls for EU members to shoulder a larger share of defense spending, combined with his often ambivalent stance on NATO, have cast uncertainty over the alliance’s cohesion. Leaders in Germany and France, pivotal players in Europe’s defense landscape, are particularly anxious about Trump’s influence on EU defense policies. Some analysts predict that Trump’s return could empower nationalist and isolationist sentiments within Europe, which may strain internal unity.
Figure: Defense Expenditures as Share of Real GDP by NATO Country
French President Emmanuel Macron struck a cautious tone, noting that Trump’s re-election underscores the need for Europe to assert its own defense and security interests independently. Macron’s message, echoed by Polish President Donald Tusk, is a call for European resilience in the face of shifting U.S. foreign policy, particularly as Trump’s administration may deprioritize Europe in favor of more direct U.S. interests.
As of mid-2023, before Sweden joined NATO, only 11 of the 31 member countries were projected to meet the alliance’s 2% defense spending target for the year. Poland (3.90%), the U.S. (3.49%), and Greece (3.01%) led with defense spending exceeding 3%, while other countries meeting the 2% benchmark included Estonia, Finland, Hungary, Latvia, Lithuania, Romania, Slovakia, and the U.K.—most of which are geographically closer to Russia. In contrast, 20 NATO countries were expected to fall short of 2%, with Luxembourg (0.72%), Belgium (1.13%), and Spain (1.26%) spending the least, and five, including Canada, spending below 1.5%. Germany, though a major NATO contributor, remained below 2% until February 2024, when a defense ministry spokesperson announced it had reached the target, partially due to additional government funding. On the same day, NATO Secretary-General Jens Stoltenberg projected that 18 member nations would achieve the 2% goal in 2024 as defense ministers met in Brussels to discuss Ukraine support and defense spending commitments.
The EU’s Economic and Political Crisis
Complicating the EU’s response to the economic challenges posed by Trump’s return are internal political crises within the bloc’s two largest economies. Germany is grappling with the collapse of its coalition government, following Chancellor Olaf Scholz’s dismissal of his finance minister. Scholz’s decision is seen as an opportunity for Germany to shift toward a more constructive role in the EU, particularly regarding budgetary policies. However, the country’s political instability poses challenges for EU unity, especially at a time when Brussels is under pressure to implement Draghi’s ambitious economic reform agenda.
In France, President Macron faces his own political struggles after losing his parliamentary majority earlier in the year. With both France and Germany mired in domestic challenges, the EU’s ability to present a unified front on economic and foreign policy issues may be compromised. This internal discord only heightens the difficulty of mounting a coordinated response to Trump’s policies and preparing for the economic repercussions of an increasingly protectionist U.S.
The Path Forward for EU-US Relations
European leaders are facing the complex task of coursing a transatlantic relationship shaped by Trump’s re-election. While Trump’s populist allies in Europe celebrate his victory, mainstream EU leaders remain wary of the long-term impact of his “America First” policies. The Draghi report provides a pathway for Europe’s economic revival, but achieving consensus within the EU on common borrowing and regulatory reforms remains a significant hurdle.
The new competitiveness deal approved at the Budapest summit reflects a collective resolve to enhance Europe’s economic independence, yet its success hinges on whether the bloc can overcome internal divisions and strengthen its economic position. As Europe prepares for potential trade confrontations with the U.S., leaders recognize that fortifying the EU’s economic infrastructure and asserting its global influence are paramount.
In the coming months, the EU’s approach will likely involve a combination of strategic engagement with Trump’s administration and the pursuit of policies aimed at reducing Europe’s economic reliance on the U.S. By bolstering its own economic resilience, the EU hopes to mitigate the risks of protectionism while positioning itself as a formidable player on the global stage. Trump’s return to the White House underscores the urgency for Europe to act decisively, not only in response to U.S. policies but also to secure a prosperous and stable future for the European Union.
