Trump and Vance May Have Accidentally United Europe

Yahoo

09-04-2025

Maroš Šefčovič is the Commissioner for Trade and Economic Security attends a press conference at the end of a Foreign Affairs Council on Trade at the EU Council building in Luxembourg on April 7, 2025. Credit - Jean-Christophe Verhaegen—AFP/Getty Images
President Donald Trump and Vice President JD Vance have achieved what no politician has ever come close to: a truly united Europe. All movements need a galvanizing figure, and for the new European Awakening, the tariff-touting Trump and the elegiac "hillbilly" Vance are these figures.
Take Vance: his antagonistic speech in at the Munich Security Conference, lambasting of Ukrainian President Volodymyr Zelensky in the Oval Office while parroting Russian President Vladimir Putin's rhetoric, recent Signal message about 'hating bailing out Europe,' and his support of tariffs all suggest that the Trump Administration sees Europe as an adversary. Not only have Vance and his boss brought Europeans together, they've re-awakened the continent's sleeping giant, Germany. Led by Berlin, Europe now faces a war on two fronts: a trade war with America and the European war with Russia in Ukraine. It is often said that Europe is forged in crisis, and this crisis is no different.
This European Awakening was birthed not in Brussels but in the Oval Office, with the Kremlin acting as midwife. Any battle between America and Europe, if it comes to that, will be waged on three fronts: mercantile, geopolitical, and financial.
In global trade wars, size matters. It seems not to have dawned on Washington that when it comes to global trade, the U.S. is a smaller player than the EU. The U.S. accounts for approximately 12.7% of world imports and 9.7% of world exports. Germany, Italy, France, and the Netherlands alone account for 15.8% of the world's imports and 16.4% of world exports. Since 87.3% of world imports come from somewhere other than the U.S., as do 90.3% of the world's exports, there's still plenty of opportunity for the world to grow if the U.S. wants to revert back to the 1930s. Some trading entrepots, like my own country Ireland, will find it much harder to live without the U.S., but continental Europe is not so vulnerable—and they know it.
Trump and Vance have made a serious strategic miscalculation in attempting to improve its relationship with the Kremlin at the expense of undermining its relationship with the EU. The European economy is significantly bigger than Russia's. And now, America has triggered a wide ranging shift in European defense policy, spending, and procurement. The dollar is falling against the Euro, German long term interest rates are rising, and European stocks have recently out-performed U.S. stocks because the world knows the U.S. and Europe are on different growth trajectories. The European economy is set to modestly grow, while most leading indicators—both hard and soft—point to a U.S. slowdown.
In the years ahead, Germany will rearm, reindustrialise, and redirect its economy with a $1 trillion fiscal expansion all in response to the understanding that Germany is once more the custodian of Europe's eastern front. This means turning Ukraine into a defensive fortress with German arms and money. And as the Federal Republic tools up with its own domestically produced arms, it will not be buying arms from the U.S. military complex. All of this couldn't come too soon for Germany's massive car-driven private sector which will now pivot to weapons. Years of prudence means Germany has ample 'fiscal space' to borrow, unlike profligate America whose finances are in a precarious state.
Over time, this global trade war might also cause a capital war in which countries bring their money home. A lot of talk now centers around America bringing its money back home, but the problem for the U.S. is that it owes far more than it is owed.
The countries that finance the huge American budget deficit—mainly China and Japan followed by European nations—could take their money home. What if European savers, depicted by MAGA evangelists as rich and degenerate progressives, sold American assets and repatriated their savings? The flaw in the MAGA rhetoric is that America is a debtor. In fact, America is the largest debtor in the world. Not only that, the United States is the largest debtor the world has ever seen at any time in human history. And for all its evident power, financial acumen, and technological innovation, America depends on other people's money.
If the world, led by Europe, sold American bonds, U.S. domestic interest rates would spike upwards, taking some of the bravado off the MAGA swagger. This year, the U.S. budget deficit will be almost $2 trillion, of which more than half is net interest—about as much as America spends on its military. Total U.S. government debt stands at $36.2 trillion—while GDP stands at just $29.7 trillion. The Congressional Budget Office estimates that by 2034, U.S. governmental debt will exceed $50 trillion—122.4% of GDP—and the U.S. will be spending $1.7 trillion a year on interest alone. Estimates suggest that America's debt as a percentage of GDP will soon exceed the Second World War peak.
Europeans have lent a considerable amount to the U.S. to cover this largesse and, to make matters worse for the Americans, the stock market is also in part fueled by foreign money. The Bank of International Settlements—the central bankers' bank—has previously estimated that when everything is netted out, the United States owes the rest of the world around $14 trillion. That's not a small number. But surely the world's reserve currency can't be so fragile? In normal times, yes, but these are not normal times. We have been here before, so we know the playbook. When Britain regressed from global creditor to global debtor from 1914 to 1918, it was curtains for the UK as the dominant economic player. The direction of travel was set; the only question was how long would it take.
The First World War profoundly changed the world's financial architecture. In 1914, Britain was the world's banker, controlling around $20 billion of foreign investments. London was the epicenter of global money, like Wall Street today, accounting for some two-thirds of all trade in international finance. As has been the case with 21st century globalization, an unprecedented boom in global trade and investment during the Gold Standard era implied all the major countries were indebted to each other in an interlinked global web of debts, counter debts and obligations. France had overseas assets amounting to $9 billion, of which an extraordinary $5 billion was tied up in imperial Russia. The communist Soviets defaulted on all Russia's old loans, leaving the French, in particular, out of pocket. Other European powers sold assets at fire-sale prices to fund the war, borrowing heavily from the one major player that stood aloof until close to the end: the United States.
America emerged from the war as the world's undisputed creditor. Not only was it owed billions, but Americans snapped up European assets at bargain-basement prices as the war progressed. This global shift in the power of money from London to New York, from Europe to America, would define the world's monetary relations for the next century. It was not an opportunity the Americans had any intention of squandering. The dollar's century followed.
Could something similar happen again? If Europe and then the world called in its U.S. debts, of course it could. Is it likely? Not in any logical, reasonable forecast of the future. However, the more stable the world, the less we need to worry about extreme events. All we can say with confidence about a Trump presidency is that anything can happen and the range of possibilities will increase. When more variables are in play, more things can go wrong and, as the world economy is enmeshed, interdependent, and interrelated like never before, things that go wrong, go wrong quickly.
Since 1945, Europe and America have been partners, joined by shared democratic values underpinned by decades of mutual prosperity and guaranteed by American military power in the face of common enemies. This partnership has remained steadfast through wars, cold and otherwise. But if this relationship is over, don't expect the divorce to be amicable.
David McWilliams is an economist, author, podcaster, journalist, and adjunct professor at Trinity College Dublin. A former central banker, his award-winning book The History of Money: A Story of Humanity, will be released to the U.S. market on Nov. 11, 2025.
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