(Bloomberg) -- European Union leaders will get their first chance on Thursday to test whether Donald Trump’s victory can help to unlock the difficult decisions required to strengthen their role in the world.
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Leaders from the 27 EU countries, along with counterparts from other European nations, will meet in Budapest over the next two days to unpack the results of the American election and begin to chart a way forward.
The meeting is being hosted by Hungarian Prime Minister Viktor Orban, who is reveling in the victory of Trump, who has been his close ally.
Since the first Trump presidency, the EU has been seeking a more independent path, with French President Emmanuel Macron warning that failure to evolve could be an existential dilemma for the bloc. The sentiment was echoed by former European Central Bank President Mario Draghi, who said the bloc faced a “slow agony” if it didn’t boost competitiveness with the US and China.
“A Trump presidency means a lot of uncertainty as he’s unpredictable,” Sophie Pornschlegel, deputy director of the Brussels-based Europe Jacques Delors think tank, said in an interview. “The EU will have to massively step up its game to avoid fragmentation,” citing the possibility that Trump will try to “divide and conquer” member states.
Among the most pressing issues for the leaders in Budapest will be EU-US trade relations, how a Trump presidency will affect Ukraine’s ability to continue defending itself against Russia’s invasion, and the future of European defense policy.
Here is what to watch at Thursday’s European Political Community meeting and the informal EU summit on Friday:
Trade
In 2018, Trump caught the EU off guard when he imposed tariffs on the bloc’s steel and aluminum exports. The EU responded with retaliatory duties on a number of politically sensitive sectors.
There’s an expectation that there could be another tit-for-tat trade escalation between the two regions. Trump has said that as president, he would target countries like China with significant tariffs, while other nations could face a smaller across-the-board duties on imports.
“To me, the most beautiful word in the dictionary is ‘tariffs,’” Trump said last month in an interview with Bloomberg News Editor-in-Chief John Micklethwait. “It’s my favorite word.”
The EU has already prepared a preliminary list of American goods it could target with tariffs if Trump follows through on his threats. And in the years since Trump’s first term, the bloc has adopted several new trade defense tools, including an instrument to respond to economic coercion.
“We know the president of the US can introduce special tariffs at any moment in time and we are certain that Trump will do so,” Nils Schmid, foreign policy spokesman for Scholz’s Social Democratic Party, said in an interview on Bloomberg Television. “We need to play hardball on that and the EU is fit to do so.”
Ukraine
Russia’s recent advances in eastern Ukraine are the latest reminder of just how much Kyiv needs continuing US and European allies’ support.
But Trump has questioned the US support for Ukraine. He may pressure Kyiv to accept some kind of peace deal under unfavorable conditions or face the prospect of continuing the fight against Russia on its own, according to two people close to Ukrainian President Volodymyr Zelenskiy’s office, speaking on condition of anonymity because the matter is sensitive.
While Zelenskiy has pledged to keep fighting, his exhausted military is heavily reliant on US aid. And even before Trump’s victory, some of Kyiv’s allies had begun discussions about how the war might end.
If Trump, who has said he would have the conflict “settled” before even taking office, follows through on his threats to shut off support, Ukraine options would narrow dramatically. The Group of Seven nations had already tried to hedge against this possibility, by pushing through a $50 billion loan program for Ukraine based on the profits of frozen Russian central bank assets.
NATO
After decades where Washington has been the backbone of North Atlantic Treaty Organization, Trump shook the alliance to the core during his first term by threatening to leave if member states didn’t ramp up their defense spending.
In the years since, many NATO nations have boosted their defense budgets, particularly after Russia’s invasion of Ukraine.
According to Zsuzsanna Vegh, a researcher at the German Marshall Fund, a Trump government would probably de-emphasize Europe and turn its attention to other parts of the world, notably the Indo-Pacific. “Trump would try to steer away from that role of main security provider for Europe vis-a-vis Russia and Ukraine,” she said.
“I don’t think the US would need to pull out of NATO to weaken the alliance, since NATO is based on mutual trust. If the biggest power appears not to be committed to Article 5, then that’s already quite enough to shake the foundation of the alliance,” she added.
Defense
To a certain extent, Trump’s warnings and Russia’s full-scale invasion of Ukraine in 2022 have served as a wake-up call for Europe’s military investments. While only three allies reached NATO’s 2% of GDP defense spending target a decade ago, 23 out of 32 allies are set to meet it this year.
Yet NATO’s new secretary general, Mark Rutte, has repeated that much more must be spent to meet the alliance’s current goals and an increase of the target is in the air.
In Europe, the necessity of ramping up defense spending independently of the outcome of the election has been unanimously embraced, with the EU even naming its first-ever defense commissioner.
But voices in the EU calling to “buy European” for defense have been met with a cold reception both at NATO and on the other side of the Atlantic. If Trump is elected, he would likely defend US arms exports to Europe even more forcefully.
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