Opinion | There’s Only One Winner In A U.s.-eu Trade War: China

Germany is back.

After 16 years of strategically unsound and self-damaging decisions, designated Chancellor Friedrich Merz wants and desperately needs change. Merz is a conservative reformer, and his new government is the country’s last shot at economic growth. The last thing he needs is a trade war with the United States.

Unfortunately, that’s exactly what President Donald Trump is starting, threatening 25 percent tariffs on European imports. And target number one is the German car industry — the backbone of Europe’s economy.

Trump’s hectoring of Ukrainian Presdent Volodymyr Zelenskyy and his blustery tariff threats against European allies both raise the same questions. Are his words just part of what he sees as a negotiating dynamic that will end with an acceptable deal? Or does he really believe that “America First” means America alone — longtime allies pushed aside. “You don’t have the cards” he lectured Zelensky. On trade, however, Germany and other western economies do have cards — ones it would be a terrible setback if they had to play.

Yes, a trade war between the U.S. and the EU — the world’s largest and third largest economies, respectively — would destroy Merz’s hopes for growth and further weaken the bloc. But it would also drive inflation in the U.S., punish and frustrate America’s lower and middle classes, and backfire on the Trump administration. Moreover, it would only strengthen the world’s second largest economy: China.

That would be ironic because China is the real threat here. Not Europe. Not Germany.

I have a concrete proposal for how to avoid such a war. First of all, Trump’s discomfort with the current trade relationship between Europe and America is understandable. The trade deficit is huge. It stands at $235.6 billion — a 12.9 percent increase since 2023. EU countries impose an average 5 percent tariff on U.S. goods, while the U.S. imposes an average 3.3 percent tariff on European goods. Even worse, the EU collects a 10 percent tariff on car imports — that’s four times America’s 2.5 percent.

The relationship is asymmetrical to the disadvantage of the American people.

This has to change — and it can — but not through a tit-for-tat race to higher tariffs. Rather, we need to lower tariffs and observe symmetry. Ideally, EU-U.S. trade would be tariff-free. However, if that’s unachievable, tariffs should be, on average, 2 percent on both sides. That would create a huge stimulus for both economies, and it could be the basis and precondition for what is existentially necessary: a common trade strategy on China.

Since becoming a full member of the World Trade Organization in December 2001, China has manipulated free trade for its own gain to become the world’s second largest economy. In 2001, China accounted for just 3.9 percent of global GDP. Twenty years later, it accounted for 18.3 percent. During the same period, the U.S. economy fell from 31.4 percent to 24.2 percent, and the EU’s economy fell from over 21.9 percent to just 17.8 percent.

These developments were due to asymmetric rules. When joining the WTO, China was considered a developing country and, in return, it enjoyed many privileges and exemptions, as well as subsidies that were forbidden to others. The result has been precisely the opposite of reciprocity.

The WTO acted based on a paradigm that’s long been suspect: change through trade. Advocated by former U.S. President Bill Clinton, former German Chancellor Helmut Kohl and many other world leaders, the idea was that the more trade democracies did with non-democracies, the more the latter would open up, the more freedom would reign. That was naïve. Change through trade did, indeed, happen, but in the opposite direction. Since 2001, year by year, China has become more autocratic and unfree. The Chinese Communist Party’s state capitalism is the most efficient form of capitalism so far, because there are no regulatory or ethical limitations, decisions are not delayed by any democratic checks and balances and the Chinese surveillance system provides access to all behavioral data of 1.4 billion people.

So, instead of advancing the damage we’ve already inflicted on our own economies by initiating a trade war, Germany and the United States should do the opposite and team up. We should establish a truly transatlantic trade (and defense) strategy based on symmetrically low or, better yet, no tariffs. Then we can start joint negotiations with China to stop unfair practices and build a trade architecture that’s in our interest.

It’s pretty straight-forward: If the largest economy in the world renegotiates terms with the second largest economy, there will be progress but likely no breakthrough. However, if the world’s largest economy negotiates alongside its third largest, a breakthrough is much more likely. It’s common sense. If you represent $48.6 trillion of economic power collectively — rather than $29.2 trillion (U.S.) and $19.4 trillion (EU) individually — and if you speak on behalf of 800 million people rather than just 300 million people, you’ll be taken more seriously, your negotiating power will be greater and the outcome will be more successful.

A deal between Merz (and the EU) and Trump could be quite simple: Lower tariffs to zero, or at least to average 2 percent on both sides, and agree on a joint trade strategy on China. A new transatlantic pact would give us the upper hand in dealing with the real adversary — it’s a win-win. A trade war between allies can only be lose-lose.

If Trump is serious about “America First,” there’s one thing he should come to terms with — it shouldn’t mean “America Alone.” More leverage at the negotiating table with China, a healthy U.S. economy without inflation, and a prosperous Germany that could turn around a stumbling EU would be in the interest of the American people and Europe.

The saying, inspired by John Dickinson’s “The Liberty Song,” had it right: “United we stand, divided we fall.”