EU US trade war, who will win?

Trans-Atlantic trade relationship remains the cornerstone of geoeconomics strategy of the USA since the end of WW II shaping great stride in politics, economics and military balance. Of late, there is an uneasiness between Europe and America that might culminate in a trade war. Who will win?

Precisely speaking EU-US trade relationship is the world's largest one exceeding USD 1.9 Trillion where goods figure slightly more than half of the quantum leading to a trade surplus USD 237 Billion in favour of Europe. That speaks of the gravity of the situation. However much EU wishes to diversify the fact remains that USA is the elephant in the room.

Since August 2025, a 15% all-inclusive tariff on the majority of goods imported from the European Union was imposed by America where pharma products have been earmarked as non-tariff items. Quite others for example steel and aluminium products are liable to highest level of tariff at 50%. Still the threat by Donald Trump to impose over-all 30% at any time hangs as Damoclean Sword.

Despite rant and rave by Ms. Von der Lyon of taking “unflinching, united and proportionate” measures, the situation remains dicey. Trump understands that he has the buyer’s privilege and EU could be forced to suffer in the event of trade war breaking out between them.

On the positive side EU has an unshakable hold in the US treasury investment hovering around 40% of the total foreign holdings in US debt market. That said, none of this could be liquidated on the spur of the moment. Moreover, any reciprocal tariff on US Imports could be fatal as they account for vast techno input from America to Europe. Looking differently, US still remains the largest foreign investor in Europe, Where US FDI is estimated as 4 Trillion USD and expected to grow in the coming years. Undoubtedly, Germany is a major beneficiary.

Donald Trump is an ephemeral person. If one angers him he has the ability to fight back to finish. Once he realises the victim is weak he would double the severity of attack and counter- attack. Now that Europe as a whole is cut –off from Russian energy, EU especially Germany depends on US energy imports. Trump also knows that Europe needs America more than the other way about in terms of political, military and not to mention economic relationship.

In a trade war between EU and US there cannot be an absolute winner. But both parties would lose extensively more by the EU than by the USA. In terms of geoeconomics strategy the trade relationship between the two giants is expected to blossom in near future, reaching 5 Trillion USD; two-way investments would be more than this trade volume; Job creation for each side would uptick above 3 million people.

My suggestion

Trade war should neither be contemplated nor be fought as it certainly leads both sides losing in the geoeconomics battle field. Hence, “navigating strategy amid geoeconomics” wiser counsel shall prevail in Brussels. Germany has the solo responsibility to ensure that peace prevails across the Atlantic!

 

Cheers!

 

Muthu Ashraff Rajulu

Strategy Adviser

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Strategy Adviser