Since the early days of the second Trump administration, critics have accused the president of unnecessarily alienating our allies in the European Union—pointing to conflicts over trade, regulation, the war in Ukraine, and free speech. In early December, the European Commission fined Elon Musk’s X 120 million euros for violating the speech regulations set up through the Digital Services Act (DSA); on December 23, the Trump Administration struck back by imposing visa restrictions on five European officials linked to limiting online speech, including Imran Ahmed, CEO of the Center for Countering Digital Hate, and the former European Commissioner who designed the DSA, Thierry Breton. In 2024, Bretton had threatened X with financial penalties for posting an interview between Elon Musk and Donald Trump.
While the Trump administration has indeed taken a harder line on Europe than the Biden administration had done, its actions should be understood as a recognition of a fundamental reality: Brussels does not align with American interests. On online speech and AI, on the NGO complex and monetary policy, the European Union acts as a strategic rival to the United States. That is, after all, what it was designed to do.
After the Second World War, federalists tried but failed to launch European integration. Their most ambitious project, a treaty pooling sovereignty to create a common European defense force, failed to convince the French. De Gaulle denounced it as a “national abdication.” Communists and Gaullists united to ensure it died in the National Assembly. Left and right agreed that the risk European integration posed to national independence was too great.
The Suez crisis of 1956 upset this consensus. When the British and French organized an expedition to expel the Egyptian nationalist leader Gamal Abdel Nasser, President Eisenhower decided the European allies needed to be brought into line, and threatened to provoke a run on the pound. Britain and France withdrew, and Nasser survived. This humiliation prompted many British and French to decide that trading national sovereignty for a larger, potentially more powerful bloc might be worth it. One French observer later quipped that a statue should be raised to Nasser as “the federator of Europe,” as he had created the conditions for what European federalists described as “ever closer union.” In 1957, the Treaty of Rome was signed, and the European Economic Community was born.
“The architects of European integration saw things differently.”
There were certainly many economic reasons for Europeans to cooperate, but these were never demarcated from other political considerations. There was the idea of making war between Germany and France impossible, but European integration was also supposed to claw back the advantages lost after the displacement of European empires by the American one. Late twentieth-century enthusiasts for globalization argued that as economics became more important, politics would matter less. The architects of European integration saw things differently. As your economy grows, they believed, your political power increases as well. Suez taught them that lesson. It was the politicization of American economic power—the financial power that had risen throughout the twentieth century—that had defeated the British and the French. Long before Edward Luttwak theorized “geoeconomics,” the Europeans intuited that economics could be a realm for geopolitical competition, intensifying political conflicts rather than weakening them.
The late 1960s clarified the flaws of the postwar financial settlement of Bretton Woods. From the American perspective, fixed exchange rates overvalued the dollar and hurt exports. The Europeans had a different complaint: They objected to what French Finance Minister Valéry Giscard d’Estaing called America’s “exorbitant privilege.” As the world’s dominant currency, the United States could run up huge deficits without paying the same fiscal consequences as other countries did. This dynamic provided the federalists with another opportunity. European monetary union, they argued, could counteract American power. As a Bank of England analysis shrewdly concluded in 1970, the proposals for monetary union were motivated by the desire to “create a Europe that could stand up to the economic might of the US and thus command for itself a more powerful voice in world affairs ... A major objective is to develop a role for European currencies with which to oppose the monetary dominance of the US dollar.”
The “Nixon shock” of August 1971 fixed the American problem. In contravention of the rules of Bretton Woods, President Richard Nixon ended the promise to convert gold and unilaterally devalued the dollar to boost American exports. Yet the Nixon shock was really a preemptive strike. The president knew that the European Economic Community was trying to break free of Bretton Woods, coordinating a common currency float against the dollar and demanding the return of gold en masse. The Europeans, however, were too disorganized to pull it off. Nixon beat them to the punch.
After the collapse of Bretton Woods showed Europe’s failure to coordinate monetary action, federalists pushed thereafter to set up a common monetary system across Europe that fixed continent-wide exchange rates. But it took the euphoria over the sudden fall of the Berlin Wall and German reunification to give federalists the opportunity they needed.
The Maastricht Treaty invented the European Union. Monetary union was supposed to incentivize political union, and in that spirit, the treaty was signed in 1992. As with Brexit in 2016, Maastricht’s proponents had very different reasons for voting for it, which paradoxically helped it pass. Some thought they were voting to end war in Europe. Some were voting to indicate how pro-European they were—or to ease a guilty conscience that they weren’t. Some thought they were voting for economically liberal fiscal discipline, stopping socialists running deficits (Maastricht limited deficits and contained a no-bailout clause). Others still thought that monetary union would create a new geoeconomic bloc capable of weathering the world’s storms and at last competing with the Americans. Fantasies abounded about how the Euro would displace the dollar as a world’s reserve currency. As with so much of European integration, the treaty mixed economics and politics together.
In retrospect, what’s remarkable is how little American leaders cared about what was happening. After the Cold War, the Americans doubled down on what Jennifer Kavanagh and Peter Slezkine have called the “fatal flaw” of the transatlantic relationship, prioritizing security and military matters in Europe at the expense of trade and technology. As long as NATO wasn’t touched, the Europeans could get away with nearly anything. Washington either believed the European Union was ineffectual or idealized it as the harbinger of a post-national political form. American leaders were not paying attention to how effective the new supranational bureaucracies were at consolidating the continent’s political, legal, and economic standards. The result, as Kavanagh and Slezkine observe, is that America ended up with “no formal say in the political, legal, and economic structures of Europe”—despite guaranteeing European security.
Since the launch of the Euro in 1999, the bloc has skillfully leveraged its unity to gain geoeconomic advantages. While Americans mocked the irrelevance of “old Europe,” Brussels won a small trade war with the George W. Bush administration in 2003, getting Bush to withdraw import tariffs on steel. It was a bane to American manufacturing, but a boon to German industry. While the Euro failed to fulfill the hopes of its dreamers—its value declined precipitously in the years after its launch—this fall laid the groundwork for an immense boost to German exports. Even the financial crisis ended up helping Berlin. Under Angela Merkel, it was the hour of the German “economic miracle,” snatching growth out of the Eurozone crisis by allowing Germany to assert its neo-mercantilist, export-driven economic model.
Germany’s strategy was the same as Nixon’s: weaken the currency to gain an advantage in export trade. From 2008 to 2015, the Euro fell by 40 percent relative to the value of the US dollar. This secured Germany’s comparative advantage over the United States and heightened America’s geoeconomic vulnerabilities. The small current account deficit that the United States ran against Europe in the late 1990s ballooned. Moreover, the Chinese saw the opportunity that the Euro provided to destabilize their American adversary. During the financial crisis, they began buying more euros. They saw the weaker, cheaper currency as a helpful way to diversify their American dollar holdings, diminishing the status of the US dollar as the world’s reserve currency.
Merkel’s last years in office saw Brussels begin wielding new forms of geoeconomic power. While Washington was once again focused exclusively on security questions—Russia, Russia, Russia—Europe became adept at using what David Singh Grewal has called “network power” in new technological sectors. Network power is the pressure a network exercises to get other entities to adopt its standards. In its most brutal form, a network pressures other entities to choose between adopting its standards and facing rising costs if it stays out. The risk of losing access to the network is often too great for other entities to maintain independent standards, even if they are intrinsically better. In the 1990s and 2000s, network power helped secure monetary union. From 2017 onwards, network power changed the way Europeans used the internet.
When Merkel’s government passed the Network Enforcement Act, social media platforms now had to take down posts that the German state (or designated NGOs) labelled hateful. Otherwise they faced immense fines and criminal actions. It’s no surprise that the platforms capitulated, complying and enforcing Germany’s provisions on users. Faced with critics of this erosion of free speech, the Germans retorted that their laws were the product of a unique set of circumstances; the country had for many years banned hate speech and Nazi propaganda. All it was doing was enforcing these laws online. This argument concealed the operation of network power. Posts didn’t have to originate in Germany; they just had to be viewed in Germany to be removed.
The upshot was that the German state had figured out a way to export its standards for censoring online speech. What was illegal offline in Germany was at risk of becoming illegal online throughout the world. By 2022, it had at least become illegal in Europe: The DSA, which extended the template of the Network Enforcement Act, went into effect. As far as network power goes, the Act works. Even under Elon Musk, X has largely complied with the DSA, which is why the recent fines levied against it are the products of caprice. The company uses its algorithms to downgrade accounts the EU deems problematic. This means that American companies are now enforcing EU speech standards.
The European Commission hopes to do the same with AI, extending its own approach across the globe. The Trump administration thinks that deregulation offers America a competitive advantage over Europe and China, because investors will prefer the opportunities it generates. But network power complicates the simple picture of laissez-faire at work. It won’t matter much if EU regulations block the rise of a domestic AI industry. If Brussels imposes high enough penalties for non-compliant companies seeking to do business in Europe, American AI ventures may decide it’s easier to comply than to incur additional costs. By focusing on the security question at the expense of everything else, Washington has turned the transatlantic relationship into one where the Europeans set the standards controlling the latest technologies and Americans pay the defense bills. The Americans may practice military imperialism, but the Europeans practice regulatory imperialism.
European regulations are not minimal or neutral. The Artificial Intelligence Act, for example, which entered into force in 2024, seeks to promote a progressive vision of society. It aligns with DEI objectives, requiring AI platforms to adopt anti-bias techniques. If a company uses AI in hiring or evaluations, for example, it will find that the algorithms assess candidates according to DEI metrics without the user knowing it. There is pressure from activist groups to go even further in this direction.
Nor are these activists pressuring Brussels entirely independent from it. The latest budget proposal from the European Commission proposes a 600 percent increase to its already generous NGO funding, bringing it up to more than $10 billion. The project makes no secret of its progressive priorities: The proposed structure for distribution, AgoraEU, aims to make Europeans “more aware and appreciative of diversity.” For at least the next four years, the EU bureaucracy will act as an official, left-wing opposition to the US federal government, promoting the ideology within the West that Washington won’t. More EU legislation is codifying the state-society partnerships crucial to expanding progressivism’s reach. This means that we can expect the cultural war over wokeness within the West to intensify over the next decade rather than subside.
“The ultimate terms of the rivalry are geoeconomic.”
But the ultimate terms of the rivalry are geoeconomic. Just as the Trump Administration is trying the most ambitious reset of international finance since Nixon in 1971, Europe has been waging a discreet kind of combat against the United States. One might call it counter-Suez. These measures are designed to provoke flight from the dollar. One can see this playing out in the response to Trump’s “Liberation Day” tariffs. The administration hoped the tariffs would encourage reserve managers to drop shorter reserves for longer duration reserves—US Treasuries. This is what happened in Asia in March and April 2025. The value of the dollar dropped, yet the value of 10-year US Treasuries rose as buyers increased during Asian business hours. Yet that’s not what happened in Europe. Sales of US Treasuries happened in European business hours, dropping the value of Treasuries. Such manipulations of the bond market wouldn’t be unprecedented for the ECB. During the financial crisis, the central bank showed it was willing to use similar measures to wreak havoc on recalcitrant governments.
The EU has also used monetary policy to target American companies. After “Liberation Day,” the ECB sought to strengthen the Euro’s position vis-à-vis the dollar by lowering interest rates, strategically keeping borrowing costs in Europe lower than they are in the United States. Consequently, big American companies are buying Eurobonds, financing their debt through Euros rather than US Treasuries. Blackrock, for instance, has signaled its preference for European government bonds over US Treasuries. These actions are designed to create a consensus that all market instability is due to the Trump administration. If they just fell back to imitating their predecessors, all troubles would vanish.
That’s exactly what the EU would like. The bloc’s problems are notorious and impossible to conceal. Yet it has survived and succeeded for so long because a compliant Washington entertained itself with nostalgic visions of Cold War cooperation. The US is setting a new course. “Let’s be honest,” Trump declared shortly after inauguration in 2025. “The European Union was formed in order to screw the United States. That’s the purpose of it, and they’ve done a good job of it. But now I’m president.”
Trump is right to confront Brussels. The European Union is a tottering 37-year-old experiment. It never brought the economic or political benefits its architects promised. But its bureaucrats were very good at wresting advantages from Washington while consolidating their grip over the continent. Now, more parties and political figures in Europe are willing to challenge Brussels and recover lost freedoms. They need help. The prospects for forming new European alliances have never been greater, if America is willing to bury the cadaver of the “transatlantic relationship.”