• ‘Tariffs are … a means to an end. Even if Trump imposes tariffs, he might take them off the table once he gets something back,’ says expert

• Boosting defense spending to meet US demands could actually help struggling European economies, particularly Germany, recover from recession, says Lagarias

ATHENS 

The EU’s internal divisions make it vulnerable to a potential trade war with the US during President Donald Trump’s second term, an economic expert has warned.

George Lagarias, chief economist at Forvis Mazars, highlighted the EU’s structural weaknesses, arguing that the bloc’s lack of full monetary union and deep-seated political and economic divisions could undermine its ability to respond collectively to Washington’s aggressive trade policies.

“I think the monetary union still needs to be completed, and divisions in Europe are deeper than in the past,” Lagarias told Anadolu in an interview.

Rather than the EU’s economic strength, Lagarias sees the real issue as the risk that member states might abandon collective trade policies in favor of separate agreements with the US, potentially weakening the EU’s position in global trade.

“So, when you have an American policy that’s going towards bilateral relationships, it will be very easy to be pulled into bilateral rather than multilateral arrangements,” he said.

An EU not at its best

Lagarias pointed out that Europe is currently in a weakened economic state, with key players such as Germany and France struggling with slowdowns.

“We’re not catching Europe at its best. The German economy is in recession, and the French economy is slowing down. Growth slowed to about a half of what it was a couple of quarters ago, and in both those big countries, there is a lot of political uncertainty. So definitely it’s a weak time for this Europe,” he noted.

Despite this, he emphasized that Europe still has the tools to counter a trade war if necessary. However, he reiterated that its fragmented decision-making process could lead individual states to engage in separate trade deals with the US, weakening the bloc’s negotiating power.

No full-scale trade war

Although Trump has threatened to impose tariffs on European goods, Lagarias does not anticipate a prolonged trade war between the two sides of the Atlantic.

Instead, he sees tariffs as a strategic tool rather than an ultimate goal.

“Tariffs are not an end, they are a means to an end,” he said. “Even if Trump imposes tariffs, he might take them off the table once he gets something back.”

One of the primary motivations behind Trump’s tariff threats, according to Lagarias, is to pressure European NATO members to significantly increase their defense spending – something Trump has long demanded.

Beyond meeting Washington’s demands, Lagarias argued that boosting defense spending could actually help struggling European economies, particularly Germany, recover from recession.

“Take Germany, whose debt-to-GDP ratio is very low. It has a lot of leeway to borrow more,” he explained.

“It just needs to take off the borrowing cap, which is likely to happen with the next government. It’s been on the table for quite some time now, and that could help lift Europe out of a recession.”

This would not be the first time that spending for defense helps a country out of a recession, he said, pointing to historical examples of how defense spending linked to the wars in Afghanistan and Iraq helped pull the US out of economic downturns in the early 2000s.

“It is not all black and white. If Trump declares a trade war against Europe, even if the Europeans do not have the structure to stand up as one unit, it’s still not all bad news,” he said.

“Spending more on defense, at least in the first couple of years, can help with dismal economic conditions in some countries today.”

Complete rupture in EU-US ties highly unlikely

A point of concern for European countries – many already running high budget deficits – is whether they can afford both increased defense spending and investments in expensive future technologies such as artificial intelligence and space exploration.

Lagarias argued that a new wave of credit expansion, alongside deregulation, could provide a solution.

“I think the next step to facilitate growth for now is going to be wide banking deregulation. The Americans are going to start it, and the Europeans, whether they like it or not, will likely have to follow,” he said.

Looking ahead to the future of EU-US relations, Lagarias acknowledged the growing calls within Europe for reducing dependence on Washington. However, he remains skeptical that Europe would make a strategic break from the US, even under the pressure of trade tensions.

“There is an impetus for Europe to be less dependent on the United States, and I think those voices will grow louder in the next four years,” he observed.

“That said, a strategic shift of Europe away from the US, even under the pressure of trade wars, is not something I foresee happening.”

According to Lagarias, the extensive economic, political, military, and intelligence ties between the two sides make a complete rupture highly unlikely.

“I think Europe and the US are so intertwined … that they cannot be untwined like this. There might be the rhetoric, even high-level rhetoric, but I think they will find ways to maintain a very good relationship and preferential relationship,” he said.