Furthermore, Washington’s undergoing economic policy changes as well, particularly visible with the Inflation Reduction Act (IRA). The tariffs on steel and aluminum that were introduced by the Trump administration weren’t one-off exceptions from a rules-based order. And the Biden administration’s decision to not extend the generous rebates for electric vehicles in the U.S. to European manufacturers highlights the strain on transatlantic cooperation.
From what we know about Harris’ economic policies at this stage, this approach isn’t likely to change if she were to become president either. So, no matter the election’s outcome, there’s a real risk of heightened competition between Europe and the U.S., with both sides trying to attract investment through protectionist instruments, jeopardizing the benefits of free trade and investment.
Since these developments are now a given, they will have several essential implications for Europe:
First, the EU must increase its spending on security and defense. This wouldn’t only strengthen Europe’s own capabilities, but it would also increase the likelihood of U.S. support in times of crisis by countering the recurring accusation of “European free-riders.” It would also be imperative this strengthening includes greater cooperation among the few European countries with significant defense industries, creating a European system that could benefit the civilian sector through innovation and economic growth.
Second, Europe is in need of larger European capital markets, as well as strengthening the euro as a global reserve currency. This would improve the financing of innovation and growth in Europe, while enhancing the Continent’s weight in international capital markets, improving its independence and strategic freedom. Europe doesn’t have a capital problem, but it does have a capital allocation problem. And the integration of European capital markets would be a quintessential step in overcoming this and allowing businesses to start as well as scale.
Finally, Europe needs comprehensive trade agreements. Even those initially critical of the failed Transatlantic Trade and Investment Partnership agreement realized its potential merits when the Trump administration started its tariffs on steel and aluminum, and regretted their initial reservations. This mistake shouldn’t be repeated with other parts of the world, and the Mercosur agreement would be an important next step in the right direction.
The U.S. remains Europe’s most important ally in many ways — especially through NATO. Therefore, Europe’s relationship with China and the U.S. cannot be equidistant. However, regardless of the U.S. presidential election’s outcome, Europe’s interests don’t fully align with Washington. It’s time to finally recognize this and draw the right conclusions.