Europe counts down to Trump’s trade war

 

Europe counts down to Trump’s trade war

By Douglas Busvine

14 mins read

January 3, 2025 7:00 am CET

https://www.politico.eu/newsletter/brussels-playbook/europe-counts-down-to-trumps-trade-war/

 

SERVUS UND GUTEN MORGEN. I’m Doug Busvine, POLITICO’s trade editor, emerging from the Austrian fog to write my first Brussels Playbook. I’ve spent the holidays at home in my better half’s ancestral village, contemplating whether to reinforce the keller and stock up on iron rations in case the war on our doorstep comes closer. It dawned on me, though, that both our internet router and the box that runs our solar roof are Made in China. That must mean that our critical infrastructure is already fatally compromised and any attempt to hunker down and survive the Fall of the West would be futile. Never mind!

 

On that happy note, I look forward to visiting Brussels next week and — like you, I hope — getting stuck into 2025. Normal service resumes on Monday with Nick Vinocur back in the hot seat.

 

DRIVING THE DAY: COUNTDOWN TO TRADE WAR 

OVER IN TRADE CORNER: We’re gearing up for Donald Trump’s return to the White House (only 17 days to go) and handicapping the prospect that he will launch a full-scale trade war from Day 1 of his second term.

 

It’s a tough call, not least because Trump sidelined Bob Lighthizer, his first-term chief trade negotiator, after I had read Lighthizer’s book, “No Trade Is Free.” That was annoying, because I’d hoped to rely on it as a handy second-term guide (it was at least a good read and Lighthizer comes over as the punchy trade lawyer of over 50 years’ standing that he no doubt is in real life). This — unsuccessful — policy pitch put comprehensive tariffs at the center of an economic strategy to bring back U.S. manufacturing jobs that, in Lighthizer’s view, were lost to free trade and globalization after the Cold War.

 

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Wall Street rules: Although Trump tapped Lighthizer mini-me Jamieson Greer to become his next U.S. trade representative, he handed Wall Streeter Howard Lutnick, his pick for commerce secretary, strategic oversight of trade and tariff policy. This doesn’t appear to be a subject that Cantor Fitzgerald CEO Lutnick has spent a lot of time thinking about — at least judging by pre-election interviews in which he called tariffs “a bargaining chip” and falsely alleged that Europe charged import duties of 100 percent on U.S. autos.

 

The most beautiful word: Trump sounded off on tariffs again on New Year’s Day, reposting a chart from tech investor Marc Andreessen showing that half of U.S. federal revenues came from tariffs in the industrial “golden age” from 1870 to 1914. “The Tariffs, and Tariffs alone, created this vast wealth for our Country,” Trump wrote on Truth Social. “Then we switched over to Income Tax. We were never so wealthy as during this period. Tariffs will pay off our debt and, MAKE AMERICA WEALTHY AGAIN!”

 

You sure about that? “We might be able to fund the U.S. federal government with tariffs alone if we eliminated social security, medicare, and medicaid, and also went back to a military of soldiers riding horses and carrying rifles,” scoffed Simon Lester, a fellow at the Baker Institute for Public Policy. “Should we give it a try?”

 

What we do know is that Trump likes to throw his counterparts off balance with outlandish opening gambits (like annexing Canada, Greenland or the Panama Canal) just to see what they might be ready to concede. In his transactional world, tariffs are more likely to be a means to an end than an end in themselves. Unlike, say, the S&P 500 share index.

 

It’s time to look inward … “The fact is that no one has a clue what Trump will do — most likely not even Trump himself,” observes Agathe Demarais of the European Council on Foreign Relations, in one of those think pieces I wish I’d written myself. “Instead of scrutinizing his and his team’s every utterance, European governments would be better off assessing their own strengths and vulnerabilities.”

 

… and it’s not looking good: With Germany holding an early election in February, Berlin will likely be out of commission for months until the likely winner, Friedrich Merz, leader of the Christian Democrats, can form a new government. In France, President Emmanuel Macron is just about the lamest duck imaginable: Would his position still be tenable if François Bayrou’s fledgling government unravels? It’s doubtful.

 

That is a problem because, despite their enervated state, Berlin and Paris are still able to throw lightning bolts at each other over European trade policy. France prevailed last year over German objections to imposing duties on Chinese electric vehicles, and Germany finally got its wish for a trade deal with South America despite French resistance.

 

From rupture to rift: With the bilateral relationship on which the European Union was founded already rupturing, it might not take much from Trump to rend it asunder — with potentially dire consequences for the continent. Merz, perhaps getting ahead of himself, called Thursday for a broad EU trade deal with the U.S., saying it would avoid “a dangerous tariff spiral.”

 

Asking for a friend: Did Merz take the temperature in Paris before uttering that remark?

 

COMPETITIVENESS AGENDA 

SCHOLZ PRESSES VDL ON COMPETITIVENESS: Friedrich Merz isn’t yet chancellor of Germany and, even though Social Democrat incumbent Olaf Scholz is lagging badly in the polls, he still has a word or two to say about economic policy.

 

Kraftakt: In a letter to Commission President Ursula von der Leyen obtained by my Berlin colleague Jürgen Klöckner, Scholz welcomes the EU chief executive’s second-term goal of strengthening European competitiveness. “Now we need to get concrete measures underway as quickly as possible. I will support you in this with all my strength,” Scholz writes in the missive dated Jan. 2.

 

“What we urgently need now is a joint European impetus to reduce bureaucratic costs and increase the innovative capacity of our companies,” Scholz adds, before setting out a hit list of priority tasks …

 

Cutting bureaucracy: Scholz supports von der Leyen’s announcement of an “omnibus” overhaul of corporate reporting requirements under a slew of measures related to sustainability and supply chains, and calls for more support to expand renewable energy.

 

Support for the auto industry: Scholz seeks clarity on EU fleet emission limits and penalty payments, uncertainty over which he says is causing drivers to hold back on buying electric vehicles. He also lobbies for Europe-wide incentives for EV purchases, and a negotiated settlement with China to withdraw EU import duties imposed in October.

 

Support for energy-intensive industries: Scholz calls on the Commission to host a European steel summit early this year to address measures for the sector, which has been hit by high energy costs and cheap imports. More needs to be done to make the EU’s planned carbon border tax less bureaucratic — and Scholz also calls for an export rebate to even out cost disadvantages for EU producers on world markets.

 

EU-only trade deals: Scholz also urges von der Leyen to secure the quick approval and implementation of the EU’s trade deal with the Mercosur bloc of South American nations. “The conclusion of further free trade agreements is a priority and negotiations already underway should be concluded quickly,” Scholz urges. “For the future, we should aim for more EU-only trade agreements, which — wherever appropriate — can be supplemented by economic partnership agreements that then apply in all member states in which they have been ratified.”

 

There’s plenty to unpack: Scholz is offering strong support for von der Leyen’s competitiveness agenda — but has some big asks in return. One is to reform the carbon border tax, originally conceived to keep out polluting products from abroad, to promote exports. Then he’s asking for European taxpayers to bail out the German auto industry with incentives to buy its uncompetitive EVs. And France will hate the idea of the EU doing trade deals behind its back. Watch this space.

 

 

THE GAS CRISIS THAT WASN’T 

REQUIEM FOR PUTIN’S GAS WEAPON: New Year gas crises just ain’t what they used to be. Your correspondent, stationed in Moscow in a previous life, gets all misty-eyed around this time of year thinking back to the winters of 2006 and 2009 — when Vladimir Putin cut supplies to more than a dozen European countries in contractual disputes with Ukraine.

 

That was then: Back in the day, around 80 percent of Russia’s pipeline gas exports to Europe went via Ukraine — and the bust-ups were serious enough to completely halt deliveries to several countries in central and southeastern Europe. That share has fallen and, as Ukraine resists Putin’s three-year-old war of aggression, Kyiv finally cut it to zero after refusing to roll over a transit deal.

 

This is now: Slovakian Prime Minister Robert Fico, jostling with Hungary’s Viktor Orbán for the title of Putin’s best buddy in the EU, has cried that the expiry of the transit agreement allowing Russian state energy firm Gazprom to export supplies via Ukraine would “have drastic impacts on all of us in the European Union.” He doubled down on Thursday, accusing Ukrainian President Volodymyr Zelenskyy of “sabotaging the public finances of the Slovak Republic and harming the financial interests of the entire EU.”

 

What crisis? Actually, Slovakia’s gas supplies — and those of its neighbors — are secure, say energy analysts, thanks to healthy reserves in underground storage and alternative sources of supply. “There is of course no crisis,” said Laurent Ruseckas, a leading gas markets expert and executive director at commodities intelligence giant S&P Global.

 

Now that hurts: What is more likely to be hurting Fico is the loss of Slovakia’s own revenues from trans-shipping Russian gas, which Ukraine estimates at half a billion euros a year. And, for Putin, the dawning realization that gas is no longer a weapon with which he can hold Europe to winter ransom.

 

Read the full story from Gabriel Gavin and Ketrin Jochecová, with graphics from Hanne Cokelaere here.

 

POLISH PRESIDENCY

FAR-OUT GALA: Poland may have made “Security, Europe!” the slogan for the six-month presidency of the Council of the EU that has just begun. But it’s launching quite a cultural adventure with the musical program for tonight’s opening gala at Warsaw’s Wielki Teatr, home to the National Opera.

 

Hip-hop historian: Wielding the baton will be 37-year-old composer and conductor Radzimir Dębski, who sports designer stubble and shoulder-length hair (occasionally done up in a man bun). Better known to fans as “Jimek,” the third-generation composer is as at home in a concert hall as on an open-air stage. He showcased his symphonic orchestration “Hip-Hop History” in 2015 and went on to win a Polish Film Academy award for his soundtrack to “Sztuka Kochania (The Art of Loving).” Jimek’s homepage highlights endorsements for luxury car and sportswear brands; his community engagement with a youth orchestra in Kenya; and a Ted Talk on “Stereotypes, how to create your own genre?”

 

Despite the rockstar allure, Jimek has paid his dues — studying classical composition at the Chopin University of Music in Warsaw, and orchestration and film scoring at UCLA. He has composed an original work for the gala tonight. “In his piece, Jimek pays tribute to the greatest Polish composers, highlighting the beauty and richness of Poland’s cultural heritage,” says the Polish Presidency. Does that mean the hip-hop has to wait for the encore?

 

Spotted already: The gala opens with speeches by Prime Minister Donald Tusk and European Council President António Costa, and will be hosted by actor and moderator Grażyna Torbicka.

 

MUSK MOVES 

MUSK SPARKS BACKLASH IN BRITAIN: Tech billionaire Elon Musk’s interventions are causing headaches for political leaders in several European capitals. There was uproar in London on Thursday after Musk, in a flurry of late-night posts on his X platform, attacked U.K. Prime Minister Keir Starmer, called for an early election and urged authorities to free the jailed far-right activist Tommy Robinson. One outraged Labour MP told the Guardian that Musk has “pushed it too far this time.”

 

But it’s not just the traditional parties Musk is disrupting. As my London Playbook colleagues have pointed out, Musk’s comments are also tricky for Trump ally Nigel Farage, who has long distanced himself from Robinson but is also hoping Musk will fund his Reform UK party. Will Farage stick to his views if it means contradicting Trump’s new best mate?

 

Also responding to Musk: U.S. Vice President-elect JD Vance last night weighed in on Musk’s Welt am Sonntag article endorsing the far-right Alternative for Germany (AfD), which has caused shockwaves in German politics. Vance posted on X: “I’m not endorsing a party in the German elections, as it’s not my country and we hope to have good relations with all Germans. But this is an interesting piece.” Trump’s incoming vice president added that American media “slanders AfD as Nazi-lite,” but claimed the party is “most popular in the same areas of Germany that were most resistant to the Nazis.”

 

Confirmed: As Playbook flagged on Thursday, Musk is planning a live discussion with Alice Weidel, the AfD’s chancellor candidate, ahead of Germany’s snap election on Feb. 23. A party spokesperson said the discussion will happen “very soon,” but did not give a specific date. Pauline von Pezold has a write-up.