The EU must accept that threats to economic security come from all directions

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The writer is professor of government at Georgetown University and co-author of ‘Underground Empire’

Markets are now battlefields and the EU is scrambling to protect itself. From investment screening to export controls, Brussels is hard at work crafting an economic security apparatus. But it would be a mistake for Europe to target its defences primarily at China. With Donald Trump’s near-certain nomination as the Republican candidate for US president, the EU needs to quickly redouble its efforts or risk leaving itself woefully exposed. 

It is hard to understate the scale of the needed transformation. The EU was founded on the idea that openness and trade were channels for peace and prosperity, not vectors of vulnerability. Surprisingly, Europe has already started to adapt to these unexpected risks, releasing an economic security agenda supported by a raft of policy proposals.

But decoding the bureaucratese reveals that these largely defend against the threat of China, even if this isn’t always explicit. The worries that they address (including investment screening, industrial espionage and dual use technology) are rooted in how Beijing has started pushing the EU around. Lithuania suffered punishing informal sanctions when it upgraded the title of Taiwan’s delegation, while China reportedly threatened to retaliate against German companies if the German government failed to clear an investment deal in the port city of Hamburg.

China is a major threat, but the EU won’t talk about the even bigger elephant in the room — a future Trump administration. That is surprising, since it was Trump’s aggressive reimposition of Iran sanctions that first woke the EU from its geopolitical slumber in 2018. When the bloc realised that it was impotent against US measures targeting its oil, gas and financial sectors it started to think seriously about economic coercion.

A second Trump administration would be much worse. When asked to identify major economic threats, Trump singled out the EU as a “foe”. His signature campaign promise is to impose a 10 per cent across-the-board tariff. Even if he does not go after Europe directly, he will no doubt escalate conflict with China. And unlike the Biden team, which has tried to work with European allies to minimise collateral damage, Trump would probably use sanctions, financial coercion and control of key technologies to force European business to bend the knee.

The EU has to accept that economic coercion comes not only from the east but also the west. And it cannot wait until January 2025 to prepare. It must think through its vulnerabilities with the US now and work to minimise chokepoints in the relationship.

First, the EU will have to invest in considerable expertise in economic coercion and sanctions, in particular. Over a single weekend in 2022, the European Central Bank, in co-ordination with the US Treasury, was able to freeze €300bn of Russian reserves. Europe does not lack economic power in principle. What it lacks is the expertise and authority to confront the US on its own.

With only a few dozen sanctions targeters across the entire continent, European member states depend on the US Treasury to provide the necessary intelligence to target its own economic strikes. And US resolve helped Europe overcome an internal political process riddled with vetoes. Unfortunately, the European economic security agenda, so far, is silent on sanctions. Trump will exploit these weaknesses and the political divisions that undermine European efforts to remedy them.

If Europe hopes to stand up to a bully, it must also be willing to act. Officials in Brussels publicly hope they will never be forced to deploy their theoretically powerful anti-coercion instrument, which turns access to its single market and customs union into a deterrent. But these hopes undermine the instrument’s credibility.

If the EU isn’t prepared to use a weapon, no one will care that it exists on paper. Just as the US went after large European banks for breaching sanctions in the 2010s, the EU should start thinking about test cases that could signal its power and resolve. Turning defence into offence would not only push back against Trump but also an increasingly belligerent China. It would also be a warning for any future US administration that seeks to turn its economic weapons against Europe.

Europe has proven itself more nimble than most critics would have expected, accepting that global markets generate vulnerabilities as well as prosperity. But it needs to focus not just on the challenge but the likely challengers. Ignoring the risk of a re-Trumpified America might set Europe up for a very harsh winter indeed.