The last few weeks have made it abundantly clear that the Trump administration is turning away not just from Ukraine but the European continent. Vice President J.D. Vance told leaders at the Munich Security Conference that they should prepare to “step up in a big way” to handle their own security, Ukraine was excluded from U.S.-Russian negotiations to end the war, and the U.S. refused to vote for a European-backed U.N. resolution that condemned Russia’s invasion of Ukraine and called for Russia to withdraw its forces. And that was before the entire world witnessed Vance and President Donald Trump bicker openly with Ukrainian President Volodymyr Zelensky in the Oval Office, accusing him of “gambling with the lives of millions of people.”
To say that this has sent shock waves across Europe would be an understatement. What might surprise the Trump administration is the reaction not just from liberal European powers but backlash from populist leaders such as Nigel Farage, who said the spat would “make Putin feel like the winner” and added that Ukraine needed security guarantees. Jimmie Åkesson, leader of the national conservative Sweden Democrats, criticized Trump directly, calling his behavior “very serious” and reiterating that the Sweden Democrats would support Ukraine for however long it takes. Giorgia Meloni, the only European leader to attend Trump’s inauguration, also expressed concern, calling for a new summit including the U.S., Europe, and Ukraine and saying any division only benefited those who wish to weaken the West. Marine Le Pen, leader of the far-right National Rally in France, on Tuesday called the U.S. suspension of military aid “cruel” and “inhuman.” A meeting last weekend that included the leaders of more than a dozen European leaders, as well as representatives from Turkey and Canada, made clear that support for Ukraine would continue with or without the United States. What most Americans don’t realize, however, is that Europe can and will make the United States regret the Trump administration’s actions.
The global financial crisis of 2008, which originated in the United States, prompted speculation that European countries might “decouple” from the U.S. economy. But the U.S. staged a relatively strong recovery and adopted regulatory reforms aimed at preventing a repeat. Yet the current political instability could cause such a decoupling in the form of a trade war. While the EU would suffer, so would the U.S. and its manufacturing industries, such as aerospace and automobiles, that export significant quantities to Europe. The agricultural and energy sectors would also see serious losses, for the same reason.
While it is true that America imports more from the EU than it exports, its exports are still significant: The EU and U.K. account for 22 percent of American exports. A few weeks ago it seemed plausible that the U.S. might be able to take advantage of the U.K.’s free trade agreement with the EU to play them against one another: The U.S. could apply tariffs on imports from the EU while avoiding them on exports to the EU by directing them through the U.K.
Don’t count on that happening now. No country in Western Europe is as strongly pro-Ukraine as the U.K. It began to aid Ukraine immediately after the occupation of Crimea in 2014, efforts that ramped up in the months preceding the invasion in 2022. Without these efforts, it’s possible that Ukraine might have been overrun in the early days of the war. A February YouGov poll indicated that British voters, by a more than 2-to-1 margin, would prefer the U.K. support Ukraine than that it maintain good relations with the U.S. That was before the Oval Office blowup, for which 67 percent of Britons blamed Trump and 7 percent blamed Zelensky.
Vance’s statement that EU nations should prepare to shoulder more of their own defense could indeed goad them into building up their militaries, but that could turn that into a Pyrrhic victory. European members of NATO import vast quantities of arms and defense technologies from the U.S. While NATO members are not formally required to buy American, the U.S. exports more than $300 billion worth of arms and defense technologies each year, most of it to Europe and other NATO countries. European defense companies have been left languishing as a result. If and when Europe remilitarizes, it only makes sense for them to revitalize their own industries. The European Commission has already announced that it will seek to boost its own defense industry at the expense of the U.S., which has proven itself far too erratic and disloyal to be relied on for such a critical need.
Internally, within Europe, the main effect will be a strengthening of the European Union. We’ve already seen this in the London meeting with Zelensky and the leaders of 18 European countries this past weekend, from which British Prime Minister Keir Starmer declared that a “coalition of the willing” would continue to support Ukraine. By abandoning Europe and befriending Vladimir Putin, Trump has sent the message that “America first” actually means “Europe last.”
Among eurofederalists, whose goal is to turn the EU into a “United States of Europe,” a common European military has long topped their political wish list. European Commission President Ursula von der Leyen, and French President Emmanuel Macron have expressed support for the idea several times over the past decade. But it has never gained widespread support, and has always been strongly opposed by the Eastern European members of the Union. NATO already exists, opponents have argued, with most EU states as members, so why should the EU form its own military coalition?
With NATO faltering, this argument no longer holds up. Nervous Eastern European nations, unable to turn to the U.S. and too small to hold their own against Russia, will now have to turn to Brussels for protection. These are the same countries that have not only opposed the formation of a European army, but have also been the bulwark against all kinds of power transfers, helping to safeguard the sovereignty of the member states. If they have to rely on the EU for defense, they will never be able to stand up to the Union’s overreaches. The path to a centralized union will be wide open.
How does this concern the U.S? Since the end of World War II, the U.S. dollar has been the undisputed global reserve currency. This has always been much to the chagrin of European leaders, forced to trade in American dollars even in commodities they don’t buy from the U.S. With the dollar as global reserve currency, in any transaction, the non-American party carries nearly all of the currency risk. In any transaction that is denominated in dollars, which is over half of all global trade, a non-U.S. buyer risks the dollar strengthening relative to their own currency, making the purchase more expensive. Likewise, a non-U.S. seller forced to denominate the sale in U.S. dollars risks the dollar weakening relative to their own currency, which would mean they get paid less than they expected.
Present and past European leaders including Macron, president of the European Central Bank Christine Lagarde, and former European Commission President Jean-Claude Juncker have all expressed their hope that the euro will one day be able to knock the dollar down from its dominant position.
While the euro might not be able to fully replace the dollar as a reserve currency, a multipolar currency system is not implausible. Since the Eurozone crisis, which started in 2009 and dogged the union for over half a decade, the EU has worked to “fix” the euro by granting itself greater power over member states’ fiscal policies.
What would this mean for the U.S.? First, and most importantly for U.S. consumers, it would mean higher borrowing costs. The dollar’s status as reserve currency creates an artificial demand for U.S. Treasury notes, allowing the U.S. to borrow money at rates that are far lower than any similarly indebted country could ever dream of. Higher federal borrowing costs subsequently trickle down into higher mortgage rates for ordinary American households, and higher rates for businesses, reducing investment.
The U.S. is already on an unsustainable fiscal path, especially without entitlement reform. Without reserve currency status, the U.S. will have even less time to fix its problems as borrowing costs skyrocket. Tax hikes are all but inevitable in that scenario.
Furthermore, the U.S.’s ability to contain hostile nations such as Iran through sanctions instead of warfare would be drastically reduced without the dollar’s reserve currency status. Many transactions that do not even involve U.S. parties still clear through U.S. banks, ensuring U.S. sanctions are effective even when levied against countries the U.S. does little to no trading with.
Up until now, beyond eurofederalist think tanks and policymakers, there has been little public appetite for rocking the boat and attempting a serious challenge against the dollar’s dominance. Trump’s antics are changing this.
Donald Trump has claimed that the U.S. has provided more funding for Ukraine than Europe collectively has, but that’s not true. European nations have also suffered through even higher inflation than the U.S. due in no small part to having to replace relatively cheap Russian fuel imports (especially natural gas) with other options as the EU and U.K. took drastic measures to cut off the Russian economy. The U.S., which never had much trade with Russia, did not have to make this sacrifice.
When Donald Trump justifies his pulling of support for Ukraine by arguing that Europe can’t expect the United States to carry the full load, he is adding insult to injury. The U.S. has claimed the role of leader of the free world for the past 80 years. If America is unable to continue to provide leadership, Europe will have to turn inward and focus on trying to claim the leadership mantle for itself. Whether it succeeds or not, Europe and the United States both will be worse off. To quote one of my favorite fictional villains, Ramsay Bolton: “If you think this has a happy ending, you have not been paying attention.”
