America signed the trade accord, but Europeans are frustrated. It could change forever the mechanics of the American alliances, with earth-shattering fallouts.
It’s common—almost universal—Europeans complain about the trade agreement they just signed with the United States.
Moreover, will the tariffs America has imposed on half the world be effective? The issue is highly controversial, and the consensus is that they possibly won’t be. Yet, they are a US gamble to fix its economy and signal both domestically and internationally its determination to do so. Once that decision was made, what can a weak and divided EU practically do?
Perhaps the real point of the US-EU trade deal is that it came immediately after China and the EU failed to reach a similar agreement. Despite decades of different rhetoric, trans-Atlantic ties are stronger than those linking Eurasia.
However, the true twist may be different. The deal is presented as a US victory and an EU loss. This narrative alone can sour and weaken a bond that has been the anchor of international stability for over a century.
France’s Prime Minister, François Bayrou, called the European Union’s trade deal with America a “dark day” for the bloc. Germany’s Chancellor, Friedrich Merz, said the accord would “substantially damage” his country’s economy. On the FT, Martin Wolf argued: “The economic paradigm has been fundamentally altered. Is this new arrangement stable? Or is much more craziness ahead? When it becomes obvious that US trade deficits are not shrinking, what will US President Donald Trump do? How will this affect global relations?”
Yet, several other countries and most European pundits have acknowledged that the deal—under which the EU will face a 15% tariff on most goods, including cars—is better than a full-scale trade war.
There are two sets of problems here. One concerns US economic struggles, and the other involves communication.
The US struggle is: how to fix US re-industrialization, trade deficits, and thus its enormous debt. The world depends on the US. Without a thriving US, there is no world as we know it. In this context, the US (right or wrong) can claim a kind of victory.
The other issue is communication, and here it is a disaster. Perhaps never in transatlantic history has there been so much European annoyance with America, amplified by the EU’s feeling of powerlessness.
Some go to the extreme of imagining a global shift toward greater EU reliance on China and less on the US—that, in the long run, could reshape the world. Yet, this would only be possible if China opened its markets and currency, which now seems highly unlikely. Moreover, China’s support for Russia in Ukraine cuts deeply into European interests, and no amount of trade sweet deals can fix such a vital and complex issue for many European countries.
But the lack of alternatives doesn’t solve the transatlantic rift; it simply makes it more frustrating and may even deepen it. A colossal mistake in politics is to think that frustration—without practical solutions—can be ignored. But frustration always spills over into something else, most likely into issues we can’t see at the moment.
The US cannot afford to be cavalier about this. The European frustration is part of a broader phenomenon: Germany is coordinating more with the UK, which is talking more with Japan, Canada, Australia, South Korea, and New Zealand. These countries, once just spokes of the US wheel, are increasingly coordinating and preparing to confront the US indirectly. America may think it can use the old “divide et impera” (divide and conquer). But everybody knows the old maxims and the ways around them. The US might need to think more comprehensively.
Unintentionally, the US has built a new, tighter coalition of allies—many with grudges against America—something unprecedented in history. Of course, nobody is interested in breaking a wheel that has worked so well for so many years, but things won’t just sort themselves out; all parties need to work together to fix the troubles. Whatever the economic results, the communication must be fixed; it must be a win-win proposition for everybody, not a win-lose one. Otherwise, the US could win a deal and lose the world.
If it’s not fixed, there’s no reason to think these countries will turn toward China; they make a world in themselves, and numerous “non-aligned” nations like India, Indonesia, Mexico, Nigeria, and Brazil could be eager to coordinate independently of the US.
This could lead to a new world order where the US is no longer the central power, with the balance shifting between London, Berlin, and Tokyo. In theory, these three could coordinate a currency peg or introduce a new stable currency to bolster the system.
Whatever deal has been struck between the US and the EU now could then be forfeited in a few years.
It hasn’t happened yet, but multiple signs suggest that this could be the future movement. If America doesn’t fix this problem soon, it may face greater trouble than it bargained for—not from China, but from these shifting alliances. And, if China plays its cards well, it could seize a new opportunity.
Earlier great powers failed when their economies couldn’t maintain their position when they lost their economic/financial power. Spain couldn’t pay its debt to the Fuggers when it lost its war against the Dutch Republic – that did take a long time but it was the essence of its decline. The Dutch fleet defeated the combined English and French fleets in a battle in 1673. Around 1700 its economy was too weak to keep up with England.
In the 1960’s the US war against Vietnam was one effort to much. First US devalued the dollar from $35 for a troy ounce of gold to $42.22, then it ended the Bretton Woods agreement. Now gold cost about $3500 per troy ounce, so it lost 99% of its value in less than 60 years.
But Kissinger noticed a way out. The dollar was and remained the main world currency. By maintaining an import excess, paying with dollars created out of thin air, foreign oligarchs would have dollars to invest in US economy and debt. They would thus have an interest in maintaining US hegemony. The petrodollar concept was a prominent part of that.
US maintains some 800 military bases in foreign countries and spend more on war preparations and war than the next ten biggest military spenders together, and many of those ten are allies of US. It also exported much of its industries to low wage countries to lower costs, exploiting those countries in the way former colonial countries did. An example I was taught in school: in 1829 the Dutch introduced the ‘Cultuur Stelsel’ in Java: farmers were forced to grow crops for export to the Netherlands, and the profits covered half the Dutch government budget. But – something that was not told in school – those farmers could not grow enough to feed themselves and some died of hunger.
The idea was that low wage countries would remain low wage countries, but China didn’t conform. Its industrial capacity is now three times that of US, its universities as good as those of US or better.
US did not limit the export of dollars to a reasonable level. After the financial excesses of Reagan it had the good fortune that USSR failed. It included the East European countries in NATO to extend the export of US armaments and tried to dismember Russia. That seemed to succeed. Putin seemed to be the right president to continue after Yeltsin. But then, in 2003, he told the oligarchs that he would destroy them if they meddled in politics and made an example of Khodorkovsky. US ideas to ‘decolonize’ Russia and split it into twenty countries it could control went nowhere.
US didn’t give up. It won more and more control over Ukraine. Ukrainian oligarchs were promised NATO membership in 2008 despite Russian objections. Ukrainian forces were more and more trained to NATO standard. They were engaged in the war against Afghanistan, when NATO went to Afghanistan in order to defend itself against Afghanistan.
In 2014 followed the US organized coup in Kiev ( Victoria Nuland ). Russia was then military too weak to intervene, but recognized that it might become necessary. The parliament of Crimea rejected the coup regime and the defection of very nearly the whole of the Ukrainian garrison made it possible to organize a referendum asking accession to the Russian Federation. But in the Donbass remained a civil war.
Russia tried to avoid war but when it proposals for equal security for all European countries were rejected in December 2021 it started its Special Military Operation in February 2022 to restore Ukrainian neutrality.
We now see the US administration accepting that the destruction of Russia cannot yet be achieved and the European oligarchs, represented by the EU commission, are trying to win a lost war. It accepts ridiculous trade proposals by US and cut itself off cheap Russian energy. In the meantime Russia – once described as a gas station masquerading as a country – has in PPP terms the largest economy in the world after China, US and India and the industry to produce more weapons and ammunition that US and the European countries together.
Of course that doesn’t mean that Russia could win anything useful by conquering countries. It has enough land to find very nearly all minerals and grow all crops it needs within its own borders. Very different from Germany in WWII that wanted to germanize Ukraine to grow crops and needed the oil from the Caucasus to win the war.
We do live in interesting times.