EU’s economic ‘window of opportunity’ to lobby Trump

EUROPE has been bracing for the worst from US President Donald Trump in the first few days of his new administration. However, the region may now have an unexpected political “window of opportunity” to influence the new administration’s economic policy as it seeks to strike a potential grand bargain to ward off trade tariffs and wider measures in 2025.

To be sure, there are a huge array of issues that are bedevilling US-EU tensions at the moment. For instance, some media reports this week that Trump wants to withdraw 20,000 troops from Europe which, while not officially confirmed, is very plausible.

It should be remembered that, in July 2020, towards the end of Trump’s first presidential term, he announced that Washington would withdraw 12,000 troops from Germany in response to Berlin’s failure to meet Nato defence spending targets of 2 per cent of GDP. In February 2021, then-president Joe Biden formally suspended this previously planned withdrawal of US troops from Germany.

However, the biggest US-Europe challenges are probably centred around economic policy. The EU has therefore been braced for the worst this week as Trump issued a tsunami of executive orders.

From his recent presidential rhetoric, Trump could try to impose sanctions on some countries, including China, Mexico and Canada, as soon as Feb 1. However, there are a number of signs that he may – unexpectedly – wait longer before potentially imposing any such trade measures on Europe and some other powers.

Trump is famously unpredictable, but for now, it appears he will take time to lay out in coming weeks a case for a more considered approach for future tariffs and other measures against Europe and these other powers. This was outlined in the “America First Trade Policy” memorandum he released on Monday (Jan 20).

Buying US oil, gas

This points to a potential, multi-month window of opportunity before April for EU leaders, including Italian Prime Minister Giorgia Meloni and European Commission President Ursula von der Leyen, to try to lobby Trump and strike new economic bargains.

For instance, Trump has previously demanded that “the one thing they (the EU) can do quickly is buy our oil and gas” when asked how Europe could avoid heavy tariffs. This appears to be part of a policy by Trump to ramp up US fossil fuel production and exports to deliver on his “America First” strategy.

Following Russia’s invasion of Ukraine in 2022, the United States is already the EU’s second-largest gas supplier of liquefied natural gas (LNG). To date in 2025, EU countries have imported over half of their LNG from the United States.

Von der Leyen has given a potential green light to importing more US LNG, displacing Russia LNG. She said recently “it’s something where we can get into a discussion, also (where) our trade deficit is concerned”.

Trump’s trade memo on his first day back in the presidential office on Monday also announced potential changes to US export controls, sanctions regimes and investment screening mechanisms. It is likely that these regimes and mechanisms will become tighter during his term of office, possibly sooner rather than later.

International trade may be the biggest single US-EU clash point in coming weeks. While the EU is vulnerable to new US tariffs, the UK government, however, believes that the country may escape this fate as its trade balance with the United States is much more balanced than the EU’s. The United States is the EU’s biggest trading partner, with total two-way trade and foreign affiliate sales between the two economies valued at roughly US$8.7 trillion.

Trump said this week: “We have a US$350 billion deficit with the EU. They treat us very very badly, so they’re going to be in for tariffs.” It is possible that Trump could introduce sanctions any day, but going by his Monday memo, it seems more likely that he will take at least several more weeks to reach a conclusion.

The memo indicates that his team will seek to develop analyses of persistent US trade deficits, perceived unfair trade practices and currency manipulation among partner countries. It also asks, before April 1, for recommendations on remedies, including a “global supplemental tariff”.

In theory at least, this review creates a potential multi-month window for Europe and its leaders, including Trump-favourite Meloni, and other powers to try to lobby the new administration. It also allows time for any internal disagreements within the Trump team about how best to implement any future tariffs to be resolved .

Any US move to impose much higher tariffs on the EU, as Trump has threatened many times in the past, could badly damage Europe’s economy. Moreover, higher US tariffs on China could redirect cheap products to Europe, undermining the bloc’s domestic manufacturers.

Another key question for business is whether there will be reciprocal moves by Europe and other powers in response that potentially lead ultimately into “trade war” territory. The long era of expansion of international trade as a share of global GDP is probably now at an end; however, in historical terms there could be a long way to fall downwards, based on long-run averages over the last couple of centuries.

Volatile markets

Trump’s political style is to try to knock his opponents off-balance with unpredictable, shock and awe tactics. So markets may be very volatile in coming weeks as this all plays out. The best case scenario for business may be that after the initial market gyrations, the aftershocks will lessen.

However, this cannot be taken for granted. As the International Monetary Fund highlighted last autumn, there has been a big disconnect in recent years between higher geopolitical risk and lower market volatility.

This indicates that asset prices may not fully reflect the potential impact of wars and trade disputes. Such a disconnect makes shocks more likely, because higher geopolitical tension could trigger immediate sell-offs in financial markets and prompt volatility to snap back as it catches up to such uncertainty.

So there is no guarantee that this disconnect will continue in the next few years which could heighten economic volatility for businesses. In such scenarios, some financial institutions may be forced to sell assets or deleverage balance sheets to meet margin calls or satisfy risk limits. This could potentially exacerbate market sell-offs.

Taken together, Europe therefore now perceives an unexpected potential political “window of opportunity” to influence Trump’s economic policy in coming weeks. The continent’s leaders will therefore pick up the pace of their engagement with the White House to try to strike a bargain and prevent future market volatility.

The writer is an associate at LSE IDEAS at London School of Economics