The European Union (EU) faces significant pressure from the United States under President Donald Trump’s administration, driven by two distinct but interconnected strategies: aggressive tariff threats and demands for increased NATO defense spending. These policies reflect Trump’s “America First” approach, aiming to address perceived trade imbalances and shift more of NATO’s defense burden onto European allies.
Trump’s Tariff Threats to the EU
Recent Developments
President Trump announced a plan to impose a 50% tariff on EU imports starting June 1, 2025, citing stalled trade negotiations and a persistent US trade deficit. This follows a turbulent timeline of tariff policies. In April 2025, Trump introduced a 20% tariff on EU goods as part of his “Fair and Reciprocal Tariff Plan,” but paused it for 90 days after market volatility. The new 50% tariff threat, announced via an X post, marks a significant escalation, surpassing the earlier 39% rate proposed in April. Additionally, Trump has threatened a 25% tariff on imported smartphones, including iPhones, by the end of June 2025, pressuring companies like Apple to relocate manufacturing to the US. These tariffs are part of a broader strategy to protect American industries, with Trump arguing that the EU’s trade barriers and policies, such as the Digital Markets Act, contribute to an “unacceptable” trade imbalance.
EU Response
The EU has responded with a unified stance, preparing for potential retaliation. The European Commission, led by President Ursula von der Leyen, has vowed to respond “firmly and immediately” to any unjustified tariffs, with countermeasures worth approximately $28 billion already planned. Specific products, such as US bourbon and wine, are targeted for retaliatory tariffs, though this has sparked internal debate, with France and Italy expressing concerns over impacts on their wine exports. EU trade ministers are meeting in Luxembourg to coordinate a response that maintains pressure on the US to negotiate.
Economic Impact
Economic analyses provide varied estimates of the tariffs’ impact. The Kiel Institute predicts a 20% drop in EU exports to the US and a 6% price increase for US consumers. Bruegel suggests that while the macroeconomic consequences for the EU are significant, they are manageable, with an estimated GDP reduction of 0.11%. The German automobile industry, a major exporter, faces particular risk, with potential export declines of nearly 20%. The Tax Foundation estimates that the tariffs equate to a $1,200 tax increase per US household in 2025, highlighting the domestic cost of these policies.
|
Impact Area |
Estimated Effect |
|---|---|
|
EU Exports to US |
20% reduction |
|
US Consumer Prices |
6% increase |
|
EU GDP |
-0.11% |
|
German Auto Exports |
-20% |
|
US Household Cost |
$1,200 increase |
Trump’s Demands for Increased NATO Spending
Trump’s Call for 5% GDP
Trump has intensified pressure on NATO allies, particularly the 23 EU member states within the alliance, to increase defense spending to 5% of GDP, a significant leap from the 2% target set in 2014. This demand, reiterated at the World Economic Forum in Davos in January 2025, reflects Trump’s long-standing view that Europe relies too heavily on US security guarantees. NATO Secretary-General Mark Rutte has acknowledged the need for higher spending, suggesting a new target above 3% to be finalized in mid-2025.
Current Spending Levels
In 2024, NATO’s European allies and Canada spent $485 billion on defense, equivalent to 2.02% of their combined GDP, with 22 of 32 allies meeting the 2% target. Poland led with 4.12%, followed by Estonia at 3.43%, while the US spent 3.38%. Projections for 2025 estimate EU NATO members’ spending at 2.04%, still far from Trump’s 5% goal. Countries like Spain (1.28% in 2024) face particular scrutiny.
|
Country |
2024 Defense Spending (% of GDP) |
Projected 2025 (% of GDP) |
|---|---|---|
|
Poland |
4.12% | ~4.1% |
|
Estonia |
3.43% | ~3.4% |
|
United States |
3.38% | ~3.4% |
|
Sweden |
~2.0% | 2.4% |
|
Spain |
1.28% | ~1.3% |
|
EU NATO Average |
2.02% | 2.04% |
EU Response
European leaders have called Trump’s 5% target unrealistic, citing budget constraints and domestic priorities. Germany’s Chancellor Olaf Scholz and others emphasize strengthening defense capabilities without committing to specific percentages. To address Trump’s demands, some allies propose redefining defense spending to include nontraditional items like cybersecurity, aiming for a combined target of 3.5% military and 1.5% defense-related spending by 2032. Sweden plans to reach 2.4% in 2025 and 2.6% by 2028, acknowledging the need for more but rejecting 5% as feasible.
Implications
Increased defense spending could strain EU budgets, potentially leading to cuts in social programs or higher taxes, which may be politically contentious. S&P Global warns that meeting Trump’s demands could negatively impact credit ratings. However, heightened spending could enhance European defense capabilities, particularly in response to Russian threats, potentially fostering greater EU strategic autonomy.
Long-Term Effects on US-EU Trade and Bilateral Relations
Trade Impacts
If implemented, Trump’s tariffs could trigger a trade war, reducing EU exports and increasing prices for US consumers. The German auto industry, for instance, faces significant risks, with potential export declines of 20%. Retaliatory tariffs from the EU could further disrupt US exports, affecting industries like agriculture and technology. The CEPR estimates a modest EU GDP reduction of less than 1% over four years, suggesting resilience but not immunity. However, these tariffs may be a negotiation tactic, and a new trade agreement could mitigate impacts, though Trump’s unpredictable approach makes outcomes uncertain.
Defense and Security
Trump’s NATO demands could push the EU toward greater defense self-reliance, potentially strengthening its security framework but risking alliance cohesion if the US reduces its military presence. A more militarized Europe could alter global security dynamics, particularly in countering Russia, but budget strains may limit progress. The proposed redefinition of defense spending offers a compromise, but failure to meet Trump’s expectations could lead to US threats to scale back NATO commitments, straining transatlantic ties.
Bilateral Relations
The dual pressures signal a shift toward a transactional US-EU relationship, where cooperation depends on EU concessions on trade and defense. This could weaken the alliance if European resentment grows, particularly if Trump’s policies are perceived as coercive. Conversely, successful negotiations could stabilize relations, with the EU leveraging its economic weight to secure favorable terms. The outcome hinges on diplomatic efforts, with EU leaders like von der Leyen and Tusk emphasizing cooperation over conflict.
Unprecedented pressure
President Trump’s tariff threats and NATO spending demands are placing unprecedented pressure on the EU, challenging its economic and security frameworks. While the EU is poised to retaliate against tariffs and explore creative solutions for defense spending, the long-term implications remain uncertain. A trade war could disrupt industries and raise costs, while defense demands may strain budgets but foster greater European autonomy. The US-EU relationship is at a crossroads, with potential for both conflict and renewed partnership depending on how these challenges are navigated. As global markets and security dynamics adjust, the EU’s strategic response will be critical in shaping the future of transatlantic relations.
