Thought Leadership - DHL Express

Should Majesty Fall to Folly: A Cautionary Word for the U.S. and EU

These days a dedicated free trader isn’t that different from a twenty-year-old Beatles fanatic: both living well outside the glory days of their respective devotions. But in an era where escalating protectionist measures would undermine global trade relationships, it’s ever more important to swim against these tides. Our geopolitical future, supply chains, and economic health have so much to gain by holding tight to our deep common interests.

In the past year, there have been indications that the U.S., EU, and other nations have begun to lean into a shared agenda regarding Chinese economic influence and trade practices. But as the calendar moves closer to Trump 2.0, there are signs that a downturn in transatlantic relations could be on the horizon. And if, as expected, members of the global community turn away from collaboration, building trade barriers rather than breaking them down, those nations will suffer economic damage and lost opportunities.

The Trump Administration is less than two months away from starting its march toward higher tariffs. Compared to the relative inertia of the Biden trade agenda, Trump 2.0 may well resemble a tornado trapped inside a hurricane. Chinese goods face 60% tariffs and a host of other restrictive measures, while the rest of the world faces a 10-20% tariff on all goods. The tariffs could be enacted through a variety of methods and timelines with some being rapidly enforced, and others taking up to a year. Some less precedented moves for tariff implementation, including the International Emergency Economic Powers Act, are receiving strong consideration. Some are holding out hope President Trump is bluffing, but Trump 1.0 would indicate that when it comes to tariffs, he and his team see things through.

Trump 1.0’s combative global trade agenda caught targeted nations flatfooted, specifically the EU. But that won’t be the case this time around: the EU and others are prepared with retaliatory tariffs for the moment the U.S. implements theirs.

Some say these tariffs are simply opening salvos in negotiations, and perhaps they’re right. One should hope so, because the alternative might just be ongoing trench warfare throughout the international trade world. A U.S.-EU trade war would be self-defeating unless it results in a longstanding agreement.

While the EU may be a reluctant participant in a tariff war, there are other issues at play regarding the European business environment. Broader competition policy on the Continent is of critical importance to EACC members. American tariffs aside, the EU hasn’t experienced sustained growth in more than a decade and is currently immersed in the three-year process of implementing obligations required by the Corporate Sustainability Due Diligence Directive (CS3D). It has been argued CS3D is more of the same.

Compare that to the recent report from former Italy Prime Minister Mario Draghi, a staggeringly comprehensive road map for global competitiveness, linking CS3D goals with growth-oriented policies. If the EU tacks toward these proposals, it would lightning charge homegrown and foreign direct investment, along with imports and exports. The EU could reenter the center of economic discussion—for a positive reason.

The U.S. could benefit as well by shifting away from managed industrial policies and embracing the competitive aspects and benefits of freely buying and selling worldwide. Honest and free competition—yes, in a rules-enforced environment—should be embraced, not shunned. When a nation sends a signal to the world that they’re pulling up the drawbridge, trading partners understandably react in kind.

This leads us to unforced errors and their ever-present companion, self-inflicted wounds. The U.S. and EU are no strangers to either: attacks on de minimis systems; protectionism versus competition; tariffs rather than open markets; overregulation instead of smart, thoughtful oversight; making enterprise and entrepreneurship the bad guys. It’s a limiting formula that necessitates selling losses as wins. And it foments uncertainty—the enemy of growth, investment, and strategy.

It's in the best interest for the U.S. and the EU to embrace competitive principles. Through friendship and open markets between us, we will be better equipped to address the onslaught of global challenges—together. And we will be the better for it.