While many have focused on Trump’s agenda concerning immigration and tariffs, the real danger may lie elsewhere: the fiscal and monetary course he has set for the United States. For Europe, this is not a distant concern. Given the interdependence of the US and EU economies, Trump’s brand of economic nationalism could destabilise the continent in profound ways.
European Central Bank (ECB) President Christine Lagarde summed up those fears in a recent interview with Radio Classique. A takeover of US monetary policy by Trump, she warned, could pose “a very serious danger” to both the American and global economies. The Federal Reserve, she stressed, plays a critical role in maintaining stability, and its decisions reverberate worldwide. “If monetary policy were dictated at the whim of any individual,” she cautioned, “the balance of the American economy — and by extension, the global economy — would be deeply concerning.”
Her intervention underscores the broader anxiety in Europe: US fiscal policies, coupled with political interference in the Fed, could deliver shockwaves across the Atlantic.
Trump, who has already clashed repeatedly with the Fed, has signalled he might seek to remove officials such as Governor Lisa Cook. While the Supreme Court has ruled that Fed governors can only be dismissed for serious misconduct, the fact that Trump is openly toying with the idea of undermining the Fed’s independence has set off alarm bells in Brussels, Frankfurt, and beyond.
The danger for Europe is twofold: first, Trump’s domestic fiscal and monetary choices will inevitably carry over across the Atlantic. Second, his instinct for weaponising trade will likely draw Europe directly into new conflicts.
If Trump succeeds in undermining the Fed, the situation will be even worse. Market confidence in US monetary credibility could erode, fuelling volatility in exchange rates and debt markets. In such a scenario, Europe would face imported instability over which it has no control.
Trump has long railed against Europe’s trade surplus, especially in automobiles. His plan for a 10 per cent blanket tariff on imports would deal a direct blow to Europe. Analysts estimate Eurozone GDP could shrink by more than one per cent, with Germany bearing the heaviest loss. Southern economies like Spain and Italy would also be squeezed.
If tariffs escalate into a broader trade war, Europe could see up to $200 billion in exports wiped out. The uncertainty itself would paralyse investment decisions and force companies to reconfigure supply chains.
Not all of Trump’s trade actions have been uniformly hostile. In August, the European Commission welcomed an executive order lowering levies on European car exports from 27.5 to 15 per cent — a partial rollback of the protectionist surge that had rattled the auto sector. Maroš Šefčovič, the EU’s trade commissioner, hailed the decision as a “crucial step” in implementing a fragile transatlantic trade truce.
Yet this should not be mistaken for a lasting postponement. Overall tariffs remain well above pre-Trump levels, and the cut is tied to a framework deal requiring the EU to open further to US agricultural goods and industrial exports. In effect, Europe is buying temporary relief at a long term price.
The auto sector, which shipped nearly 39 billion euro in vehicles to the US last year, certainly benefits in the short run. But the episode illustrates a deeper problem: Trump uses tariffs as a weapon, turning market access into a bargaining chip. For Europe, the lesson is clear — today’s truce may be tomorrow’s escalation.
If the auto industry gained a measure of grace, the technology sector quickly reminded Europe of how fragile such truces are. Recently, the European Commission fined Google 2.95 billion euro over its dominance in online advertising — a decision that immediately made Trump furious. Hours after the ruling, he denounced Europe’s “very unfair” treatment of US companies on Truth Social and threatened retaliatory tariffs on European goods.
The fine, one of the largest ever levied against Google, underscores Brussels’ willingness to enforce its antitrust rules against American giants. EU competition chief Teresa Ribera even suggested Google may have to sell parts of its AdTech business to comply. For Washington, however, such rulings are seen less as impartial enforcement than as targeted attacks on US innovation.
Trump has seized on this narrative, framing European regulation as a trade issue rather than a competition concern. His threat to trigger a trade probe highlights a dangerous pattern: whenever Europe enforces its laws against US companies — whether they relate to taxes, privacy or antitrust — Trump responds with tariff threats.
For Europe, this creates a new vulnerability. Cars may be the most visible export, but tech regulation is emerging as another battleground where legitimate policy enforcement risks provoking economic retaliation.
The implications go beyond economics. Trump has consistently undermined multilateralism, prioritising transactional deals over institutional stability. For Europe, which relies on predictable alliances and the rules-based order, this is an existential problem.
A Trump administration willing to subordinate the Fed, ignore fiscal discipline, weaponise tariffs and retaliate against European regulation would make coordinated responses to global crises nearly impossible. Whether the challenge is climate change, energy security, or financial stability, Europe would find itself dealing with an America that sees cooperation as weakness and confrontation as leverage.
What, then, should Europe do? The first step is acknowledgement: a new Trump term is not a remote possibility but a looming probability, and its risks must be translated into policy planning now.
Europe must accelerate diversification of its export markets, reducing reliance on US demand. It must strengthen internal demand through fiscal coordination and industrial policy. Above all, it must prepare for financial volatility by reinforcing the Euro’s resilience.
Christine Lagarde’s warning was not mere diplomacy; it was a sober assessment of what is at stake. Europe cannot afford to treat Trump’s threats as mere bluster. His first term offered a preview. A second term could bring a full-scale confrontation with consequences not only for growth but for the very stability of the transatlantic order.
* A version of this article appears in print in the 11 September, 2025 edition of Al-Ahram Weekly
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