Key recommendations 

• The EU needs to stand united, be firmly anchored in the rule of law and must focus on strengthening its own competitiveness and strategic resilience. However, it must also enhance its diplomatic capacity and global engagement; 

• To address overreliance on the US market, the EU should actively expand and deepen partnerships with democratic, like-minded economies;  

• The EU must strengthen existing economic partnerships. To this end, the EU must invest in revitalising its trade relations with current allies and regional blocs, ensuring that longstanding agreements remain relevant, mutually beneficial, future-proof, and aligned with its strategic goals and fundamental values. 

• The EU must accelerate investment in key industries locally to strengthen its strategic autonomy and reduce its exposure to external shocks. Decarbonisation must be recognised as a central pillar of strategic autonomy;  

• The EU must ensure that its social model is preserved. To this end, the EU should remain firm in its objective of ensuring an upward convergence of working and living conditions for all Europeans;  

• The EU urgently needs to address its fiscal constraints. This requires a combination of measures facilitated by the Savings and Investment Union including a new EU sovereign fund, expanded use of joint borrowing, and a reformed Multiannual Financial Framework (MFF) aligned with strategic objectives;  

• The EU needs to unlock the Single Market’s full potential to increase productivity, attract investment, and empower EU firms to scale across borders — reinforcing the EU’s capacity to lead in strategic sectors. A key dimension of this integration must be the creation of a unified Digital Single Market. 

• The European Commission needs to address regulatory complexity. However, simplification must not lead to deregulation that undermines legal predictability and long-term planning; 

• The EU must resist US pressure to deregulate and dilute policies introduced under the European Green Deal (EGD). The EGD is the EU’s overarching growth strategy for building a low-carbon, resource-efficient and socially inclusive economy, and it must be implemented consistently across all Member States. 

• The EU must not only defend its standards at home but actively promote them abroad — positioning itself as the global standard-setter for climate regulation, sustainable finance, and clean technology. 

 

Introduction 

The re-election of Donald Trump as President of the United States (US) signals a renewed shift towards economic nationalism, protectionist trade policies, and an assertive “America First” doctrine. This evolving, volatile and unpredictable geopolitical environment presents a complex set of challenges for the European Union (EU) but also a unique opportunity to reassert its role as a global economic and normative power. 

While the EU needs to stand united, be firmly anchored in the rule of law and must focus on strengthening its own competitiveness and strategic resilience, it must also enhance its diplomatic capacity and global engagement. Rebuilding mutual trust and keeping open the lines of communication remain essential. Escalating protectionism and tit-for-tat retaliatory trade measures on both sides of the Atlantic risks fuelling a lose–lose dynamic that would damage global trade and weaken multilateral institutions. It would also limit the capacity of democratic allies to cooperate on shared challenges. 

In this context, the EU must recalibrate its approach to global competitiveness. This means reinforcing its strategic autonomy while remaining an open, rules-based economy. It also requires investing in research, innovation, infrastructure, and institutions that will drive the green and digital transitions — without compromising the social and environmental standards that underpin the European model. 

Respond Strategically to the Trump administration’s ‘America First’ Doctrine 

The EU must respond to the US administration’s assertive ‘America First’ doctrine with unity and strategic foresight to prevent internal fragmentation and safeguard prosperity. At the heart of this response lies the diversification and strengthening of the EU’s trade relations. Overreliance on the US market creates both political and economic vulnerabilities. To address this, the EU should actively expand and deepen partnerships with democratic, like-minded economies, particularly in the Indo-Pacific, Latin America, and Africa, by revamping the multilateral system. Concluding and implementing trade agreements that advance and protect sustainable development with key partners must become a strategic imperative. To this end, the EU should continue to pursue fair and balanced free trade agreements, while also finalising those currently under negotiation. Implementing the agreement with Switzerland and further developing the re-rapprochement with the United Kingdom (UK), while maintaining the EU acquis, can further strengthen the partnership with like-minded European states. This would benefit European businesses and citizens alike. In parallel, the EU must reinforce and modernise its existing trade policy. This includes revitalising and defending the multilateral rules of the World Trade Organisation (WTO) and the United Nations (UN), while also reviewing its own instruments to protect European interests in an increasingly transactional global environment.  

Strengthening existing economic partnerships is equally important. The EU must invest in revitalising its trade relations with current allies and regional blocs, ensuring that longstanding agreements remain relevant, mutually beneficial, future-proof, and aligned with its strategic goals and fundamental values.  

Mobilise Investment for Strategic Industries and Technologies 

The US administration’s protectionist trade policies are disrupting supply chains in the EU and around the world, exposing the EU’s overdependence on the US for critical technologies, raw materials, and industrial inputs. The EU must accelerate investment in key industries locally to strengthen its strategic autonomy and reduce its exposure to external shocks.  

This requires a coordinated public investment strategy grounded in European interests. Rather than simply replicating US-style industrial subsidies, the EU should pursue targeted, transparent, and conditional support for sectors of strategic importance — including clean tech, semiconductors, and digital infrastructure. Tools such as Important Projects of Common European Interest (IPCEIs), the Innovation Fund, and the new Strategic Technologies for Europe Platform (STEP) can play a central role, but they must be adequately resourced, better coordinated by the EU, and more accessible to a wider range of actors, especially to SMEs and startups. 

Regarding defence spending, political decisions have been made at the EU level and in EU Member States, as well as among close allies such as Norway and the UK, to increase spending in response to geopolitical threats and the disengagement of the US. In the past, public investment in this field has often been plagued by duplication, a lack of cross-border coordination, operational inefficiency, and an overreliance on the US. These issues must be addressed, particularly through smart cross-border investment and joint procurement (including that supported by the future SAFE fund), which should be genuinely open to innovative SMEs as well as incumbent large companies. Decarbonisation must be recognised as a central pillar of strategic autonomy. Reducing dependence on imported fossil fuels and scaling clean technologies not only advances climate goals but also strengthens economic sovereignty. By investing in renewable energy, green manufacturing, and circular value chains, the EU can mitigate geopolitical risks, foster industrial innovation, and build lasting competitive advantages in the global green economy. In this context, the EU must ensure that its social model is preserved. The EU should remain firm in its objective of ensuring an upward convergence of working and living conditions for all Europeans. This is what sets the EU apart from other economies, creating a social space that attracts a skilled workforce and fosters stable labour relationships. The EU should be a frontrunner of just transitions ensuring that nobody, especially vulnerable groups, including low-income households, workers in carbon-intensive sectors, and marginalised people, are left behind. Moreover, embedding gender equality and the meaningful inclusion of underrepresented groups into competitiveness policies is not only a matter of fairness, but also a strategic imperative. It can unlock untapped economic potential, reinforce social cohesion, and strengthen the EU’s role in the global economy. 

Therefore, strategic autonomy must be matched by social investment. This includes strengthening social safety nets, boosting access to affordable public services, and scaling up initiatives for reskilling and upskilling the workforce across regions and sectors. A structured and sustained dialogue with social partners is essential to anticipate disruptions, manage transitions fairly, and uphold the EU’s social contract. 

This needs to be complemented by strong efforts to unlock private capital on a large scale across the Union. To this end, the Commission’s Savings and Investment Union must serve as a real catalyst to overcome the stagnation of the European economy and create a real single market for capital. Its implementation must provide the mechanisms needed to channel Europe’s vast pool of savings into productive, forward-looking investment in strategic sectors. A key component of this effort is to increase citizens’ financial literacy.  

In addition, the EU urgently needs to address its fiscal constraints. Mario Draghi’s report on the future of European competitiveness should serve as a wake-up call, rightly highlighting the mismatch between the scale of today’s socio-economic challenges and the current EU budget. Europe needs a significant and sustained increase in its common investment capacity. This requires a combination of measures facilitated by the Savings and Investment Union including a new EU sovereign fund, expanded use of joint borrowing, and a reformed Multiannual Financial Framework (MFF) aligned with strategic objectives. 

If it is done correctly, a smarter EU investment policy can do more than just respond to US industrial competition; it can shape the future of global industrial policy itself. By firmly aligning state support with sustainability, innovation, and social cohesion goals, the EU can lead by example and drive a new model of open, values-based competitiveness, ensuring a just and clean transition. 

Deepen the Single Market to Unlock Europe’s Competitive Potential 

A stronger and more integrated Single Market remains one of the EU’s most powerful tools to boost its global competitiveness and economic resilience. Unlocking the Single Market’s full potential would increase productivity, attract investment, and empower EU firms to scale across borders — reinforcing the EU’s capacity to lead in strategic sectors. 

Despite progress, significant barriers remain — particularly in cross-border provision of services, public procurement, taxation and regulated professions — and are holding back growth. The potential benefits are significant: it has been estimated that removing Member State-level barriers to the Single Market for goods and services alone could add € 713 billion to the economy by the end of 20291. Removing these barriers must therefore become a political priority, with concrete commitments on enforcement, result-based benchmarking and greater accountability at the national level, and must be properly addressed in the Commission’s 2025 Single Market Strategy. This requires action at both EU and Member State levels, bolstered by strong political steering and sufficient administrative back-up capacity dedicated to this goal. 

A key dimension of this integration is the creation of a unified Digital Single Market. The lack of meaningful integration in this area has so far prevented Europe from developing competitive alternatives to the dominant US digital actors. Deeper alignment in areas such as AI, cybersecurity, data governance, and cloud infrastructure are essential. A harmonised digital space with interoperable standards and strong privacy safeguards will enable European innovators to scale and support EU leadership in trustworthy, secure tech. This must be paired with forward-looking industrial policies that actively support the scaling of European digital actors. This, however, must not come at the cost of weakening landmark regulations like the Digital Services Act (DSA) and Digital Markets Act (DMA). These laws are not barriers, but cornerstones of a fair and secure digital ecosystem. They must be implemented efficiently and meaningfully, and they must be strongly defended against calls for deregulation. These frameworks also offer strategic leverage. As one of the world’s largest digital markets, the EU can shape global tech governance by setting standards. In doing so, the EU must reinforce its actions by affirming the fundamental rights and principles that protect its citizens. 

This effort must also be paired with smarter, more coherent regulation. Concerns about regulatory complexity are justified — excessive administrative burdens, overlapping rules, and inconsistent implementation can stifle innovation and discourage cross-border activity. However, simplification, as foreseen in the Commissions Competitiveness Compass and the Communication on Implementation and Simplification, should not mean deregulation, but greater clarity, consistency, and proportionality. Businesses — especially SMEs — need stable and predictable rules when operating across Member States. Deregulation, by contrast, often creates legal uncertainty, weakens long-term planning, and ultimately disadvantages smaller companies that lack the resources to navigate fragmented or shifting rules. Streamlining complex frameworks and improving implementation can reduce costs and strengthen confidence in the Single Market. 

Enrico Letta’s report on the future of the Single Market and Mario Draghi’s report on the future of European competitiveness provide a timely and strategic roadmap. Their calls to treat the Single Market as a “common good”, remove fragmentation in key sectors, and deepen capital and labour mobility must be translated into bold and coordinated action. By delivering on these ambitions, the EU can create the scale, agility, and competitiveness it needs to shape the global economy — not just in response to external challenges, but in pursuit of long-term leadership. 

Advance Social Cohesion and Sustainability to Strengthen Competitiveness 

What Donald Trump refers to as “non-tariff barriers”, described as protectionist and unfair and to justify his announcement of tariffs on EU products, in fact constitute critical legislation that underpins the EU’s economic model. This includes environmental and social standards introduced under the European Green Deal (EGD), the EU’s overarching growth strategy for building a low-carbon, resource-efficient, and socially inclusive economy. While concerns about regulatory complexity and the need for simplification are valid and should be addressed, this framework remains the engine of the EU’s modern, competitive, and resilient economy. 

Legislation introduced under the EGD enhances transparency, reduces long-term risk, and creates a level playing field. The EGD itself offers a coherent and forward-looking policy direction for the green transition, providing certainty to investors, businesses, and innovators. Together, these policies help shape a predictable ecosystem where responsible business conduct, long-term planning, and sustainability are seen as a competitive advantage. 

Political shifts within the EU and sustained industry lobbying have already triggered attempts to dilute these standards — a trend likely to intensify under renewed economic pressure from a second Trump administration. The EU, however, must stand united and firm to resist this pressure and ensure regulatory stability, legal certainty, and long-term predictability for investors. Rather than backtracking, the EU must consistently implement these rules across Member States and expand strategic investments in green infrastructure, workforce training, and digital upskilling. Doing so will reduce inequality and shield citizens from the major socioeconomic transformation of the green and digital transitions. 

At the same time, the likely rollback of climate policies in the US could create a global leadership vacuum that the EU is uniquely positioned to fill. This moment demands a decisive step-up in European green diplomacy and climate leadership. The EU must not only defend its standards at home but actively promote them abroad — positioning itself as the global standard-setter for climate regulation, sustainable finance, and clean technology. This leadership opens new opportunities for the EU to shape international rules, influence global value chains, and boost its green industrial base. To this end, the EU must exploit the full potential of partnerships to align trade, development and climate objectives and mobilise partnerships with climate-ambitious countries and regions around the world. 

Regulatory clarity and high standards are what make the EU an attractive destination for companies from around the world. Multinational firms value the EU’s predictability, consumer trust, and global leadership in setting norms — from climate policy to digital governance. These regulations should not be viewed as burdens but as essential drivers of innovation, talent attraction, and long-term prosperity. 

Rolling back these policies under external pressure would undermine the EU’s values, credibility, and economic foundations. The EU must instead reinforce its unique model, where sustainability, social cohesion, and competitiveness are mutually reinforcing pillars of prosperity. 

Conclusion 

The re-election of Donald Trump ushers in a more unpredictable and transactional global environment. This presents a chance for Europe to strengthen its economic foundations, build upon its strategic autonomy, and lead globally on innovation, sustainability, and fair competition. 

By acting decisively — modernising its regulatory frameworks, deepening the Single Market, investing in key sectors, decarbonising the economy and upholding its social and environmental values — the EU can transform external pressure into internal momentum. This is not just about shielding Europe from external shocks; it is about setting the pace and direction of future growth on our own terms. 

If the EU embraces this challenge with unity, clarity, and ambition, the Trump era could ultimately serve as a catalyst for a more resilient, inclusive, prosperous and competitive Europe