Reenergizing transatlantic trade dynamics over the coming years
This essay is part of the report “Transatlantic horizons: A collaborative US-EU policy agenda for 2025 and beyond,” which outlines an agenda for common action for the next US administration and European Commission.
The bottom line
Despite relatively friendly transatlantic ties over the past four years, trade has often been a source of tension between Washington and Brussels. Looking ahead, policymakers in the United States and the European Union (EU) should recognize the importance of the transatlantic trade relationship. Instead of bickering over tariffs or pursuing protectionist regulations, they should take practical steps to upgrade their economic relationship for a more geopolitically challenging era.
State of play
The state of transatlantic trade relations today is mixed. The biggest development in transatlantic trade during the past four years was the launch of the US-EU Trade and Technology Council (TTC) in 2021. Rather than revisiting longstanding trade disputes, the TTC was conceived to offer a more future-oriented agenda to help give US-EU relations a more positive outlook in the early months of the Biden administration. While critics may point out that the TTC has failed to live up to its initial hype and has not delivered many headline-grabbing deliverables, the format has nevertheless proved useful in helping to rebuild trust and drive progress on more technical areas such as artificial intelligence (AI) regulation, semiconductors, and sanctions and export controls—especially in the wake of Russia’s full-scale invasion of Ukraine in February 2022.
Beyond the TTC, progress on transatlantic trade has fallen short. Some transatlantic trade tensions remain unresolved, and new ones have appeared that have tested otherwise friendly US-EU ties. Early on, the Biden team worked to alleviate trade frustrations, including the longstanding Boeing-Airbus dispute and the Trump-era tariffs on steel and aluminum products, but both agreements were only a suspension of duties. Agreements did not resolve the underlying issues of the disputes, and the Biden administration has not abandoned the logic that informed the Trump-era assumptions about trade.
In particular, the Inflation Reduction Act (IRA) served as a wake-up call for Europe: The United States was embarking on an ambitious—or “super aggressive,” in the words of French President Emmanuel Macron—domestic climate industrial policy that could undermine European green tech leadership and industrial competitiveness. The Biden administration did take steps to address some of Europe’s concerns, such as allowing European companies to qualify for the electric vehicle (EV) tax credits for leased vehicles, and a transatlantic task force has helped allay some concerns. However, one concrete opportunity to address the problems stemming from the IRA’s tax credits through a bilateral critical minerals agreement has proven more difficult than expected and is unlikely to be completed before the US elections in November. While Europe recognized the benefits of US action on climate change, Brussels has crafted its own plan in response—the Green Deal Industrial Plan for the Net-Zero Age—aimed at bolstering the continent’s green tech sector by loosening state aid rules and pouring its own money into projects to offset the impact of some of the measures from the IRA on European firms.
Finally, an increasingly important transatlantic trade topic is how to deal with the enormous challenge posed by China. Whereas the United States primarily sees China as a national security issue and is more willing to bypass World Trade Organization (WTO) rules to address trade concerns with China, Europe still primarily views China through a trade prism—though Beijing’s support for Russia’s war in Ukraine has shifted such thinking. The Biden administration has pressed the EU to commit to tougher language on China at bilateral meetings. While not as publicly prominent a topic in the TTC, China—and its “non-market” policies and practices—has nevertheless featured more prominently in discussions on technology standard setting and digital connectivity, among other topics. For example, in the April 2024 TTC joint statement, China was mentioned three times, while “non-market” policies and practices were featured much more frequently.
Discussions in the TTC—and in the Group of Seven—have helped forge a growing alignment between the United States and the EU on the need to more forcefully push back against Beijing in the trade domain. The United States and the EU have strengthened investment-screening regulations, imposed new export controls on dual-use technologies, and imposed tariffs to address Chinese overcapacity of EVs. However, while shared concerns about China have brought the two sides closer together in certain areas, they have also highlighted divergences in their respective strategic approaches, with Washington prioritizing a national security perspective that is out of step with many European capitals.
The strategic imperative
The significance of transatlantic trade ties has become more important than ever. In 2023, transatlantic trade in goods amounted to an all-time record of $1.22 trillion, supporting millions of jobs on both sides of the Atlantic. The United States and Europe (including both the EU and the United Kingdom) are each other’s biggest trade and investment partners, far exceeding their respective trade and investment flows with China. As both sides of the Atlantic continue to recover from inflation and seek to promote economic growth, reinforcing transatlantic trade and investment ties will be critical to their efforts. Moreover, bringing the US and EU economies closer together, along the lines of former Italian Prime Minister Enrico Letta’s call for a “transatlantic single market,” could have enormous potential—even if it remains far-fetched.
Geopolitics further underscores the strategic rationale for like-minded democracies to cooperate more closely on trade. Reducing dependencies on risky suppliers such as Russia and China and boosting supply chain resilience is critical for both Washington and Brussels, and both efforts need the other to succeed. Following Russia’s full-scale invasion of Ukraine in February 2022, European countries quickly reduced their dependence on Russian oil and gas, turning to other producers, especially the United States, which has since become Europe’s most important supplier of liquefied natural gas (accounting for more than half of EU imports in 2023) and a major supplier of crude oil. European countries have also invested in US nuclear energy technology and stepped up purchases of US-made weapons. Moreover, as both the United States and the EU have become more concerned about dependence on China for important supply chains such as pharmaceuticals, critical minerals, and other key technology inputs, the concepts of de-risking—inaugurated by European Commission President Ursula von der Leyen in March 2023—and economic security—echoed by US National Security Advisor Jake Sullivan a month later—have become widely accepted by both sides.
Transatlantic cooperation will also be an asset to industrial policy. As both the United States and the EU embark on a new era of industrial policy that aims to reshore manufacturing capabilities from China and boost economic competitiveness at home, there is untapped potential to design industrial policy initiatives in a way that reinforces collaboration rather than invites unnecessary divisions. Against the backdrop of a more challenging global geopolitical environment, the logic of friendshoring by deepening dependence on trusted partners while reducing dependence on risky ones deserves greater attention from policymakers. Avoiding protectionist actions across the Atlantic—whether a trade or a subsidy war—in favor of promoting trade openness and lower transatlantic barriers is crucial to be able to compete with China from a joint position of strength. Resolving transatlantic trade disputes and pursuing coordinated approaches to industrial policy is also essential to enable the green transition.
Finally, at a time when the international economic system centered around the WTO and its rules, standards, and norms is fraying with no clear alternatives in sight, transatlantic cooperation is necessary to promote the much-needed structural reforms of existing institutions and propose new multilateral solutions, perhaps with a smaller number of like-minded countries.
Looking ahead
The road ahead for transatlantic trade is not straightforward. There are several unresolved irritants and looming challenges that will need to be addressed by the next US administration and its EU counterparts no matter the outcome of the US election in November. Central to tackling these challenges is whether Washington and Brussels will resort to greater protectionism, causing more bilateral tensions, or whether they can seize the moment to put aside differences and deepen trade relations at a pivotal point in global geopolitics.
The consensus on trade has eroded over the past decade with both political parties in the United States. Republicans and Democrats have turned away from free trade and globalization toward overlapping variations of protectionism and economic nationalism. Whether former President Donald Trump’s “America First” or President Joe Biden’s “Buy America,” this trend is unlikely to fade regardless of who sits in the White House in 2025. While Vice President Kamala Harris would likely continue much of the Biden administration’s skepticism of free trade deals and its strong focus on domestic labor, she would also likely be careful about alienating traditional US allies. Conversely, Trump would probably resort to a far more aggressive trade posture against the EU with less internal opposition to such policies than during his first administration. The Republican Party platform advocates for “fair trade” over free trade, and Trump has put extensive focus on combating the trade deficit with the EU.
More potentially protectionist winds are also blowing from the other side of the Atlantic. The next European Commission is likely to continue promoting trade but with a stronger focus on economic security and sovereignty. In her political guidelines for the next term, von der Leyen emphasized “reciprocity and a level playing field” as well as “diversified and resilient supply chains.” She called for more “Clean Trade and Investment Partnerships” rather than traditional free trade agreements. Much of the EU debate over the next five years is expected to be dominated by how to boost economic competitiveness and industrial policy, strengthen the internal market, and take a more business-friendly approach to regulations.
One of the most immediate issues incoming US and EU officials will face is addressing the suspended Section 232 steel and aluminum tariffs. In the agreement reached in late 2023, the EU set its deadline to impose retaliatory tariffs in March 2025. Unless a new agreement can be found, a further temporary suspension will be necessary to avoid a return to tit-for-tat tariffs. A Trump administration would likely seek to reinstall the 232 tariffs that his administration originally imposed, but a Democratic administration may not be any more inclined to lift the tariffs for fear of alienating crucial labor unions.
Moreover, in the event of a Trump presidency, there is a real risk of a transatlantic tariff war stretching far beyond just steel and aluminum. Trump’s pledge to impose 10 percent tariffs—or even up to 20 percent—against all imports would hurt the EU; for instance, Germany would be estimated to lose 1.4 percent of its GDP by 2028, amounting to over €120 billion over the four-year period. Trump’s continued criticism of the EU and focus on the persistent US bilateral trade deficit with the bloc means he might impose additional tariffs against EU products. Brussels could respond in kind. Such a scenario would be deeply detrimental not only to US-EU trade but also to transatlantic relations more broadly, leading to a loss of trust that might easily spill over into other policy areas as well. Conversely, while a Democratic administration would likely seek to avoid imposing new tariffs on the EU, it will remain reluctant to discuss greater trade openness and market access.
Sanctions policy represents another trade-related area that requires ongoing attention. During the Biden administration, there has been unprecedented strong coordination between Washington and Brussels on sanctions and export controls in response to Russia’s full-scale invasion of Ukraine. By comparison, sanctions were often a point of tension under the Trump administration, such as those relating to the Nord Stream 2 pipeline or continued business with Iran. Should Trump return to office in 2025, the United States’ use of extraterritorial sanctions could become more expansive, possibly causing transatlantic tensions. The EU has developed its anti-coercion instrument in recent years and may not hesitate to use it should it determine it is in its interest to defend itself against US extraterritorial sanctions going too far in targeting European entities.
Finally, as both the United States and the EU continue to focus on China’s unfair economic model, they will need to coordinate and align their respective approaches. In particular, China’s industrial overcapacity warrants a strong trade response, as already seen from both Washington and Brussels on imposing tariffs against Chinese EVs.
Policy recommendations
- Scale the TTC. The TTC should be preserved but adjusted to become more effective. A TTC 2.0 should include a more streamlined working group structure focusing on promising or strategically important areas, such as economic security, AI, and other emerging technology standard setting, or green industrial policy. Moving to an annual TTC ministerial meeting supplemented by occasional informal check-ins could afford working groups more time to address technical issues and prepare substantial policy deliverables and noteworthy announcements, thereby sustaining stakeholders’ interest. Finally, a small TTC secretariat could provide a focal point for external stakeholders to handle stakeholder input in a more structured way and better facilitate the sharing of data and information between stakeholders and officials.
- Find small wins on sectoral trade and tariff reductions. Tariffs remain an irritant for US-EU trade. Regardless of a friendly US administration or not in 2025, it is nearly implausible any US administration would unilaterally remove the tariffs given domestic politics. Even so, finding a compromise on steel and aluminum tariffs would also help address US concerns about the EU’s Carbon Border Adjustment Mechanism, which will begin to apply fully in 2026. Beyond avoiding a confrontation over tariffs, the United States and the EU should seek to eke out smaller sectoral trade agreements on things like clean energy and critical minerals as part of a transatlantic clean energy alliance.
- Coordinate trade policy on China. China will remain a priority for both sides of the Atlantic. Policymakers made serious progress on aligning their respective approaches to regulations and standard setting for new and emerging technologies in the past few years with China in mind. That focus should continue. Key examples include work in the TTC on a common approach to AI risk management and 6G wireless infrastructure and in the WTO on e-commerce and digital trade. Policymakers should also ensure coordination on defensive economic actions in case Beijing tries to use its economic influence to coerce either Washington or European capitals. Additionally, they should continue to align their respective approaches to tariffs against China, extending beyond the scope of EVs.
- Avoid a subsidy race to the bottom. As both the United States and the EU continue to develop their industrial policies, there is a pressing need to better align their approaches as part of a joint transatlantic economic competitiveness agenda. This could include identifying sectors such as AI and green energy where their industrial policies do not create a zero-sum competition, building secure supply chains, and coordinating on government investments to avoid a “subsidy race” in critical sectors as part of a WTO-compliant “club.”
Erik Brattberg is a nonresident senior fellow at the Atlantic Council’s Europe Center. He is also senior vice president in the Europe practice of the Albright Stonebridge Group, part of DGA Group.
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Image: A crane lifts a shipping container on the quay side of Dublin Port container terminal in Dublin, Ireland, May 25, 2023. REUTERS/Phil Noble.