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FT readers are old enough to remember when Joe Biden committed hundreds of billions of dollars in subsidies to green technology — and Europe panicked. In the past week, Donald Trump has undone Biden’s industrial policy, while promising huge investments in AI and fossil energy instead — and Europe is panicking again. No matter what a US president does, it seems, Europeans see an existential crisis.
This should give us some perspective on the “peak pessimism” expressed in Davos. Perhaps, just perhaps, it reflects European attitudes more than it does the EU’s objective prospects. That is not to deny that Trump’s second administration will pose huge challenges to the bloc’s economic and geopolitical model. But that model was already ripe for change. It would suit the EU to be more entrepreneurial about its fears, and use Trump’s arrival as a source of opportunities — both to make it easier to make the changes that are long overdue, and to benefit from the self-harm the US is about to inflict on itself.
Start with trade. Trump wants to shrink the US trade deficit with the EU. European leaders want to increase investment at home. These desires amount to the same thing. As EU leaders increasingly acknowledge, the EU’s trade surplus is also a huge savings surplus exported to finance investments abroad. The penny needs to drop: redirecting these savings to domestic investments means leaving behind a growth model driven by export surpluses.
The understandable European instinct is to placate Trump and hope to salvage their US market access. But this instinct is obsolete. Learn instead from the more clear-eyed (everything is relative) strategy towards China: de-risk, though not decouple. The probable next German chancellor, Friedrich Merz, rightly warns companies reliant on China that they have to face the risks of disruption on their own. The same mindset can be extended to the US.
Then there is defence. Europeans have to spend a lot more on this — not because the US president says so, but because Russian belligerence threatens their freedom. Trump’s demand to raise defence spending to 5 per cent of GDP can, however, be the prod needed to break through political inertia, by shifting the question from whether to spend substantially more to how.
In the short run, this means more weapons purchases from US manufacturers — an easy promise to trade for other favours in Washington. In the medium run, ironically, it could lead to the opposite, as European arms producers get the certainty of sustained and higher demand — especially if their governments finally manage to standardise specifications and procure jointly.
Energy is next. The EU struggles with high energy prices, and hasn’t managed to give up Russian pipeline oil and liquefied gas. Trump would like nothing more than boosting oil and gas sales to Europe. The quickest way to achieve this would be to complete the EU’s sanctions against buying Russian fossil fuels — but this requires unanimity, which Russia-friendly member states resist. The smart thing to do is request a helping hand from Trump by pointing out that it’s his own admirers, from Budapest to Bratislava, who stand in the way of a bigger order book.
In addition to a political springboard to realise existing European priorities, Trump’s disruption also offers new opportunities to exploit. If Biden’s subsidies for renewables and green tech sucked investment from Europe to the US, then today’s about-face must logically do the opposite. More likely, those fears were always overdone. But the Maga antipathy for anything green strengthens the case for doubling down on incentives to make more profitable in Europe the decarbonisation investments that have just become less profitable in the US.
Think about immigration, too. For a long time Europe has bled talent to the US, and the shortage of qualified staff is a common complaint from high-tech businesses. If Maga America proves too extreme for the world’s young well-educated workers (and the UK remains neuralgic about immigration), an EU that throws its doors open could become a global pole of attraction. High-skilled immigration schemes that allow movement between EU states, such as the Blue Card initiative, should be enhanced, perhaps in conjunction with the pan-European legal framework for innovative companies that European tech has asked for and Brussels has promised to deliver.
Europe should heed the words of an earlier US president: it has nothing to fear but fear itself. The best response to Trumpian aggression is to use it to make Europe great again.
martin.sandbu@ft.com
