How is the United States faring economically after the Biden years? Pretty well, if we analyse the main indicators. In 2023, US growth was 2.5%, while the European Union was at a ceiling of 0.5%. It should still be above 2.5% in 2024.

The last three years have seen a spectacular increase in US exports, boosted by the gains in competitiveness generated by the Inflation Reduction Act. Unemployment is at an all-time low (just 3.6% in 2023). As for the financial markets, they are in insolent health, with the S&P 500 up 22% since the start of 2024, buoyed by the performance of the American tech giants, whose leadership has been further strengthened in recent years by the advent of generative artificial intelligence.

So what led voters to send the Democrats back into opposition? Two factors seem to have fuelled Americans’ ‘fed upness.’ Firstly, the fact that American prosperity has done nothing to reduce inequality. In 2022, the Gini index, which measures the degree of inequality in a country, was even higher than in the early 2010s. Then there is inflation and the monetary policy adopted to counter it. In a country of consumers where household debt reached $17,800bn in the second quarter of 2024 (source: Federal Reserve Bank of New York), the last few years have been particularly trying, especially for the middle class.

Against this backdrop, with promises to take monetary policy back into his own hands, cut taxes, boost energy production to bring down energy prices and increase tariffs to protect American industry, candidate Trump has succeeded in winning over a majority of voters.

The great return of protectionism

This economic programme will not be without consequences for the rest of the world. Trade wars and the return of protectionism are not new phenomena. But with the US president announcing that he wants to raise tariffs on foreign products by 10 to 20%--a measure that will inevitably lead to reciprocal decisions--and in particular by 60% to 200% on Chinese products, this dynamic will accelerate, further upsetting the trade framework in which our economies have built their growth over the last few decades.

In Luxembourg alone, trade with the United States is worth $25bn. The vast majority of this trade consists of imports of services, amounting to $17.9bn in 2022 (source: Statec). Luxembourg mainly exports financial services ($3.75bn a year), but also transport and communications services. It exports over €1bn worth of manufactured goods (2022), mainly from the steel industry. It should also be noted that our country is also a favoured destination for foreign direct investment from the United States, with several major American companies choosing Luxembourg to operate part of their business in Europe (Microsoft, Amazon, Goodyear, etc.). Finally, the commercial relationship between Luxembourg and the United States is very important for our investment funds.

For the European Union as a whole, trade in goods with the United States represented €867.8bn and trade in services €684bn in 2022 (source: European Commission). Certain European powers will be particularly exposed to the consequences of these protectionist policies. This is the case for Germany, where world trade accounts for 50% of GDP. The day after Donald Trump’s victory, Moritz Schularick, president of the IFW economic institute in Kiel, : “Donald Trump’s victory marks the beginning of the most difficult moment in the history of the Federal Republic of Germany in economic terms, because in addition to the internal structural crisis there are now massive challenges in terms of the external economy and security policy, for which we are not prepared.”

The return of Donald Trump, if that were still necessary, calls on Europeans to look at the transatlantic relationship with more realism, and let’s face it, a lot less naivety. And since the 47th president of the United States seems to make the balance of power the alpha and omega of all negotiations, whether diplomatic or commercial, it is up to Europeans to rise to this challenge. Clearly, they will not be able to do so if they are divided. In this new geopolitical and economic context, the European project takes on its full meaning. At a time when the United States wants to protect its market, it is high time for Europe to put the finishing touches to the single market that will enable us to talk to Donald Trump on an equal footing. In his report published in April, Enrico Letta already gave us all the keys. Now it’s up to us to use them.

The challenge of competitiveness

The other major challenge is to restore Europe’s competitiveness. Here too, Mario Draghi's report, published in September, sets out the diagnosis, albeit a painful one. Europe must now embark on the reforms needed to boost productivity through innovation and become a leader in the green transition and artificial intelligence. It needs to create global champions capable of making the investments needed to compete with the American giants, who are currently partly fuelled by the savings of Europeans, to the tune of €300bn a year. This is more necessary than ever in the fields of tech, finance, health, defence and space, for example. This is precisely the roadmap of the new European Commission, led by Ursula von der Leyen, whose ranks include Luxembourg’s , commissioner for agriculture.

The task of the new European Commission will prove to be particularly complex, given the weight of the national contexts. The Franco-German partnership seems paralysed by internal political crises and by the widening budgetary differences between the two countries. In other member states, for ideological or strategic reasons, there will be the mortifying temptation to favour bilateral relations with the United States rather than a united Europe. Let’s make it clear: division is a recipe for failure.

European defence, a necessity

And what if, paradoxically, Donald Trump’s re-election was the electroshock that Europe needed to relaunch itself? Because with his ‘America First’ doctrine, Donald Trump is throwing down another challenge to Europeans, one that will bring about cohesion: that of defence. While Trump has made a number of ambiguous comments about the future of Nato (the United States alone will be responsible for 65.6% of the military spending of all member countries in 2024) and support for Ukraine, Europe needs more than ever to gain strategic autonomy. In a world where war seems to be taking hold, Europe’s security, and therefore its very existence, can no longer depend on the goodwill of whoever is in the White House.

By increasing its defence budget to 2% of its gross national income by 2030, Luxembourg is contributing to this effort and assuming its responsibilities. This will represent an annual expenditure of almost €1.5bn euros from 2030. Most European countries are on the same trajectory. But this budgetary effort must be accompanied by an ambitious economic policy to give the European Union a defence industry capable of guaranteeing this strategic autonomy. Luxembourg must play its part in this.

What about the environment?

Finally, the election of Donald Trump represents a political challenge for Europeans in terms of international cooperation in the fight against climate change. By withdrawing the United States from the Paris Agreement during his first presidency and downplaying the urgency of an energy transition (he announced that the United States would be “drilling like crazy”), Donald Trump has driven an ideological wedge between Europe’s climate policies, which focus on an ambitious reduction in greenhouse gas emissions and the achievement of carbon neutrality by 2050. This divergence will undoubtedly make it more difficult to implement concerted strategies on a global scale, with the collective pressure needed to engage other nations weakened by the withdrawal of the world’s second largest emitter of CO2.

This situation must lead the European Union to assume a climate leadership role, by stepping up its investment in innovative green technologies. But this must not come at the cost of the competitiveness of European businesses. Trump’s plans for environmental deregulation will force Europe to protect its industries against the resulting disparities in competitiveness, notably through the border carbon adjustment mechanism.

If Europe was built around its motto “United in diversity,” it is time to show that it can also be united in adversity.

is director general of the . We are publishing his post--available --with his permission. It was originally published in .