Endangering the Economy: What Trump’s first weeks mean for European businesses

Agora Strategy Institute Commentary on interdependence of European companies with the United States

The return of President Donald Trump to the White House has sent shockwaves through international politics and global markets. At the same time, his “wood chopper” approach to U.S. institutions threatens the very domestic recovery he promised to his voters. Already, his approval ratings have stumbled as inflation is heating up again.

While the deliberate whirlwind of executive orders, press statements, and social media announcements rarely leaves a moment to pause and reflect, Trump’s address to Congress on Tuesday provided yet another warning: Businesses around the world must be prepared for a comprehensive restructuring of the global economic, financial and security order. In just a few short weeks, his administration has already implemented sweeping changes that are reshaping diplomatic alliances, economic policies, and global trade dynamics, thus destroying almost all good will and global soft power America had enjoyed for so long.

While alignment with Russia on European security and the Ukraine war may be the most profound disruption, his tariff-wielding approach to trade and his declared intent to pocket resources and infrastructure as he pleases, from Greenland to Panama shake-up the business world. From imposing 25% tariffs on steel and aluminum imports, to imposing trade restrictions on Mexico, Canada, and China and announcing tariffs on European goods within a month, the damage to business confidence, visible on the stock market, has already been done. Moreover, with the U.S. fiscal deficit becoming more and more unsustainable and counter-measures looming from trading partners, it is quite possible that Trumponomics will fail spectacularly and end in global stagflation.

These developments have created a volatile environment for businesses, governments, and international institutions. As protectionist policies take center stage, the transatlantic relationship faces renewed strain, with Europe grappling to maintain its economic interdependence with the United States while accommodating stark political divergences.

The widening gap is problematic

This widening gap between US politics and transatlantic business practices is problematic because it undermines the stability and predictability essential for robust trade. Protectionism and populism both create regulatory uncertainties that disrupt established supply chains and trigger sudden tariff hikes or policy shifts. Such volatility erodes mutual trust and hampers the economic interdependence that has long been a cornerstone of global prosperity, ultimately stifling innovation and growth on both sides of the Atlantic.

The consequences of these political divergences are tangible for businesses

US companies operating in Europe now confront a fragmented regulatory landscape with stringent data protection rules, higher environmental and labor standards, and other measures that differ sharply from the more market-oriented approach in America. These discrepancies result in higher compliance costs, increased legal uncertainties, and the risk of retaliatory trade measures that can disrupt established supply chains. Meanwhile, European businesses face the threat of abrupt US policy shifts and protectionist measures that unsettle longstanding trade flows and alter market dynamics. This imbalance can increase operational risks and raise barriers to efficient cross-Atlantic commerce.

To navigate these challenges on a political level, a balanced, pragmatic European approach that leverages robust diplomacy without compromising core values is needed. Instead of reacting impulsively to every provocative headline—a tactic that only plays into Trump’s strategy of manufacturing crises for media dominance—political and business leaders should focus on presenting accurate data and long-term strategies that help diminish the impact of manufactured controversies.

A key element in this strategy is the reinforcement of internal cohesion. The EU’s single market of 450 million consumers offers a strong foundation; initiatives like the Digital Single Market and the Capital Markets Union streamline compliance requirements and reduce bureaucratic red tape, creating a stable and predictable environment that attracts American investments.

European businesses can take several concrete steps to adapt

By investing in local partnerships and forming joint ventures with American firms, they can better understand and navigate the US regulatory framework while fostering lasting goodwill among local stakeholders. Diversifying supply chains and exploring alternative export markets, even as they maintain strong ties with the US for example at state level, can mitigate the risks associated with sudden regulatory changes or tariff hikes. Moreover, by investing in advanced compliance systems and developing dedicated legal teams to monitor policy shifts in real time, European companies can enhance their regulatory agility and adapt quickly to new challenges.

International business councils also have a crucial advisory role to play in this environment. They offer platforms for cooperation and knowledge sharing, acting as essential intermediaries that bridge the gap between divergent political climates and the practical realities of cross-Atlantic commerce. These councils facilitate regular dialogue among industry leaders and policymakers, helping to ensure that private sector concerns are considered in legislative processes, which in turn contributes to a more predictable regulatory environment.

Investment carries risks

However, increased investment in the United States also carries risks, as European companies may face increased regulatory scrutiny (if not occasional discrimination) and legal barriers there. The administration's focus on America First policies and “deal-making” could lead to the arbitrary enforcement of regulations. This creates an uneven playing field for foreign investors and an operating environment for European industry that does not guarantee fair business practices or tangible benefits. Instead, this environment may lead to increased dependency, compliance costs and potential litigation.

Outside of the US market, the administration’s ending of dis-encouraging American companies to use bribes in third countries is a worrying warning sign of more reckless competition in markets that European companies may turn to in search for alternatives to the US market.

There is no size-fits-all solution, but options to prepare

In the current climate of political divergence and protectionist policies, there is no one-size-fits-all solution. Instead, increased vigilance, sober long-term cost-benefit calculations, and an openness to react quickly and decisively are key factors for the way ahead. In addition, maintaining open channels of communication with policymakers is crucial. In order to influence the strategies of EU member states and the Commission to counter Trump’s policies, companies should make their voices heard in the European political arena.

Staying informed about both U.S. and EU regulatory developments allows businesses to anticipate and adapt to changes promptly. Given the current uncertainties, a thorough assessment of the risks associated with U.S. investments is imperative to ensure informed decision-making and strategic resilience.