The European Union’s Most Dangerous Hour

It has so often been said that the European Union advances through crises : but these defining moments have usually been caused by internal events or deficiencies. This time is different. There is a conjunction of geopolitical challenges by Russia, in different forms by China and now the United States, with direct and threatening or coercive geoeconomic actions from both towards Europe. American duties targeting China have little chance of success if Europe takes over the slack, and the US therefore wants Europe to follow suit. When China retaliates with wide export denials over rare earths and critical materials, it is a global decision which hurts Europe as much as America, even if the EU saw itself as a bystander. This is so much so that American negotiators in Geneva may not have understood that when they agreed with China to pause reciprocal sanctions, in China’s view the pause did not include more global measures, such as these exports denials.

The most obvious geopolitical tests can still feel quite distant to most Europeans. The United States has so far only started a war of words and political interference on Europe. China’s outward push is painfully visible to its neighbors, not so compelling to us. The other shoe has yet to drop: an actively prepared unification of Taiwan by force or coercion. Russia’s war on Ukraine is met only by Ukrainian soldiers, notwithstanding a large contribution of European weapons and aid. Even Baltic states and Poland will not join directly the fight. This aggression is certainly a turning point for many Europeans and deemed as an existential issue by anybody with a sound strategic mind. It is not yet recognized as such by most public opinions. To wit, the slow ramping up of defense expenditures against many other priorities. Actual fund expenditures (as opposed to announced) proceed very slowly in European countries other than states along the Baltic, and also, it must be recognized, in the United Kingdom. The much heralded Euro 800 billion "Readiness 2030" EU defense initiative faces fiscal hurdles in several key EU nation states.

The background: a mounting geopolitical storm

But international conflicts today, even more than yesterday, are won by technological supremacy and economic leverage. So much so that in the decades after 1989, most Europeans and many Americans thought they could prevail through sanction mechanisms, while avoiding major combat engagement. America’s Democrat presidents became the designers of an international sanction architecture. Europeans, while often dragging their feet over specific interests, mostly followed. These sanctions were carve-outs within a globalized and mostly free trade economy that remained largely untouched. It was the best of both worlds: defeating evil while making little or no sacrifice. Shielded, the Europeans could also afford to criticize, with or without cause, almost all American military interventions that remained, while steadily decreasing their own defense efforts.

Those illusions are over (which is not to say that sanctions should be forsaken, but only that they don’t preclude the necessity or the risk of engaging in armed conflict). Russia’s aggressions mix the nationalist ambition of reconstituting the Tsarist and Soviet empires with geoeconomic motives. Estonia, Lithuania, Estonia and Moldova are most at risk. China’s strategy in the Western Pacific echoes a millennium of Go South strategies, and it is impossible to distinguish between a pursuit of regional supremacy, military control and the capture of vast fishing and seabed resources. Donald Trump’s gambits - claims on Greenland, Canada, Panama and the like - mirror these trends. They are a return to century-old practices, when the United States bought Louisiana, Alaska and conquered Cuba or the Philippines. It must also be said that Turkey has not given up its designs against Armenia, and in effect occupies a large tract of Syrian territory. Israel is completing its annexionist project of Cisjordania and may be on the edge of placing settlers again in Gaza after a twenty-year interval.

China - behind the slogans of win-win and shared prosperity - has ramped up under Xi Jinping its ability to manage the economy at times of conflict and pursue global supremacy or even monopoly in key economic sectors. Russia sees war as a prologue to future prosperity by increasing its domain and its share of irreplaceable natural resources. Donald Trump’s America believes it needs additional resources, most of these external, to win a key conflict against China without endangering its prosperity. That the latter trend appears at the same time that the United States withdraws commitments from allies and cites all its engagements of the past three decades as mistaken investments should not be a complete surprise: the Nixon-Kissinger withdrawal from Vietnam and engagement with China also coincided with the John Connally doctrine - "our currency, your problem" and the clobbering of Japan and Taiwan - America’s most reliable allies in Asia. Retrench, reinforce and rearm are a common thread.

And so, today’s global trade showdown, the accompanying weaponizing of tech and education, the banalization by both the United States and China of extraterritorial sanctions and coercion towards alignment are not distinct from a geopolitical rivalry ready to turn into active conflicts. They are an integral part of this rivalry, at the minimum to gain or regain economic dominance through political tools, at the maximum to hoard resources in order to be able to generate or withstand conflict. The United States and the Soviet Union fought to keep the world divided as it was. Today, the United States and China - with Russia as the third, less potent but more daring actor - fight more of a war of positions. In this great game, Europe is seen either as being on the table rather than at the table, or as a pawn to be enlisted at a minimal cost.

Both China and the United States use ideological projection. China does it with honied promises of shared prosperity that currently almost give it an edge over the United States. America’s tone is indeed much more brutal. It has started a proselytist cultural and political campaign. This matches endorsement of a politically reactionary and economically ultra-liberal worldwide wave with the denunciation of "an aggressive campaign against Western civilization" by Europe. This reversal of responsibility would easily be recognized by Russian and Chinese influencers, who are seasoned practitioners of role reversals. That fight has other twists. Who would have thought that American leaders, once the inventors and winners in soft power appeal, would revel today in insults against allies while praising every dictator on the surface of the earth?

Trade and geoeconomic coercion at the service of geopolitics

The above description may not be a certainty as regards the United States. There are pauses, move backs and denials. Nonetheless, the present turmoil and unpredictability of U.S. foreign policy suggests a need for caution, including preparing for worst case scenarios. These are not limited to a pullback of U.S. defense commitments to Europe. Indeed, these scenarios now include international trade and wider geoeconomic goals. In that area, what many foreign interlocutors of the present administration have described as an impossibility to ascertain what are these goals may indeed be an integral part of the game. Let’s turn back to the now famous essay by Stephen Miran, now president of the Council of Economic Advisers, published in October 2024: many of his far-fetched predictions have now turned into actions by the Trump presidency. Among tools that are materializing: "tariffs are a negotiating tool, the President was mercurial in their implementation-the uncertainty over whether, when, and how big adds to leverage in a negotiation, by creating fear and doubt";"tariffs create negotiating leverage for incentivizing better terms from the rest of the world on both trade and security terms"; "forced to choose between facing a tariff on their exports to the American consumer or applying tariffs to their imports from China, which will they choose?";"impose a user fee on foreign official holders of Treasury securities, for instance withholding a portion of interest payments on those holdings" and "differentiate among countries(…) Tax rates experienced by different nations on their reserve holdings can be a function of their relationship with America";"Start small (…)It’ll take time to find the "right" level, but patience will help reduce adverse consequences." All of the above is now implemented, even if Stephen Miran may have got wrong the effect of tariffs on the dollar’s exchange rate ("the dollar is likely to strengthen before it reverses, if it does so") and underestimated negative impacts on the U.S. public bond market.

The 2025 US-China-EU trade triangle, the EU’s greatest test

The European Union is facing a preview, on trade and tech or export controls, of what a US-EU-China triangle could look like. The EU is apparently the weaker actor - having been targeted directly on several occasions by the United States since the April 2 "Liberation Day" and also by China (directly on EV tariffs and indirectly on denial of rare earths and critical material exports). It seems to have banked above all on trade talks with both China and the US to deflect or stop their negative decisions. It has also entirely refrained from inflammatory language, while using back channels to communicate potential moves for retaliation or actions that would be taken in that context. So far, none of these countermeasures have come into being. A 25% tariff on selected U.S. goods, announced on April 9 and set to take effect on April 15, was rescinded on April 14 as a 90 day pause on reciprocal tariffs (e.g. until July 14) was agreed with the U.S.: this still left in place the 10% universal tariffs and specific tariffs on steel, aluminum and the auto industry of 25%, without any EU equivalent tariff on U.S. goods. Meanwhile, talks were under way between the EU and China, with a summit planned in Beijing for mid-July: that date follows closely the deadline set for an EU-US trade agreement. Failing that, U.S. tariffs would increase to 50% on July 14, on the eve of the EU-China summit.

Whether that meeting was productive or not is anybody’s guess at this stage. It had been immediately preceded by a long awaited Council agreement to ban Chinese medical devices from public procurement - the first ever implementation by the EU of its 2022 International Procurement Instrument (IPI). And the following day on June 4, EU Commissioner for Industrial Strategy Stéphane Séjourné stressed the need to diversify away from Chinese rare earths.

Likely not by coincidence, the U.S. had ratcheted pressure once again on the EU. Donald Trump, citing stalled talks with Brussels, announced on May 23 an acceleration of the 50% across the board tariffs on the EU to June 1 - only to extend the deadline again to July 9 on May 23 : this followed a quick pledge by Brussels to accelerate negotiations. Within one week (May 23 to May 29), the US announced a swath of export denials to China, from jet engine components to a broader than previously selection of semiconductors. It is likely not coincidental either that the US and China, following talks in Geneva, had agreed on May 12 to pause their reciprocal tariff escalation for 90 days - e.g. until August 12.

On June 3, the USTR sent a "friendly reminder" to the EU about the July 9 deadline. Nor is it a surprise that as the EU made China’s export denials of rare earths and minerals an important new issue, Donald Trump announced - also on June 4 - that this issue made him pause the pause on China. He therefore put additional tariffs on steel and aluminum whose ultimate producer is most often China, with a partial exemption for the U.K. which has signed a trade deal outline with the US on May 9. And on June 5… he reached over the phone with Xi Jinping an agreement to resume trade talks.

These developments are far from over. The summer of 2025 promises to be a fateful one for international trade

Europe’s roadmap through the maze: pick the less impossible option

To the layman reader, the above chronology - far from complete - may seem like pure chaos. Jagdish Bhagwati famously called the proliferation of Preferential Trade Agreements (PTA) a "spaghetti bowl". What we are witnessing today is a large scale, high speed version of this play, with multiple threads, yet enacted only by the world’s three largest trade actors. These three have a mixture of bilaterally intertwined interests. And two of them, the EU and the US, have similar complaints about China, but no strategic or even trusted agreement on how to deal with those complaints. And also two - China and the US - see their trade and tech duel as an integral component of a broader and fundamental geopolitical contest, one that can be a prologue to armed conflict.

"Not taking sides" is also an impossible option, because the transatlantic economies and societies are more deeply integrated than any other region: transpacific trade there may have surpassed transatlantic trade long ago, but cross investment and innovations run deeper across the Atlantic. Only the United States could provoke the ultimate rift, if it persists in a combination of strategic letdown of Europe and outlandish trade, regulatory and financial requests. One defeats the other, starting from the simple fact that Europe cannot "pay tax" to the United States at the level now required and more than double its defense expenditures at the same time.

China has so far remained firm on almost all recent or long-standing requests - and merely lifted sanctions on individual EU parliamentarians that had been adopted in 2020. France did not obtain in May a reprieve on a ban against cognac that has already been partly implemented. Its export denials hurt European industry. It plays European member states against one another. But it does not have the power to break Europe. The United States, by continuing support to Europe or attempting to make a separate peace with Putin’s Russia, has that power to make or break Europe. Whether it will come to its senses cannot be certified at present.

And that puts the European Union and its member states to a test that is more severe than the crises of the last 70 years. Gently but firmly cut down to size the outlandish and contradictory requests made at one time or another by this administration, keep up the impetus to converge where our strategic and long term interests coincide, or can be made compatible - and that does mean a solid line against expanding dictatorships, while persuading the United States that an entente with Putin’s regime is an impossible goal.

Just as realistically, Europe takes a pragmatic stance and is trying yet again to see whether China is amenable to compromises. It will have to repeat the lesson learned in the past if China, as seems likely, does not budge with actions rather than in mere words towards Europe - or perhaps counters Donald Trump’s clumsy opening towards Russia with a priority opening to Washington’s requests.

Copyright image : Anna Moneymaker / GETTY IMAGES NORTH AMERICA / Getty Images via AFP
Donald Trump and German Chancellor Friedrich Merz in the Oval Office at the White House on June 05, 2025 in Washington, DC.