US Policy Shifts and the Future of the Transatlantic Alliance

Currently, the United States and Europe disagree on several fronts to such an extent that the post-World War II transatlantic alliance is significantly fractured. U.S.-Europe relations have reached a point where its recovery, if pursued, would be a difficult and lengthy process.

Why US-Europe Relations Are Shifting

Recent developments in the economic, political, and military dimensions of U.S. relationships with Europe, including the European Union (EU) and the United Kingdom (U.K.), suggest that alliances fostered over more than a century are facing substantial and potentially unprecedented risks.

While the future is uncertain, diplomatic and economic shifts initiated by the United States since January 2025 indicate that mostly cordial transatlantic relations are phenomena of the past and may never be completely restored. Even if subsequent U.S. presidential administrations seek to mitigate detrimental features of the new U.S.-Europe relationship, the transatlantic alliance will remain significantly marked by this moment, with the possibility of a full recovery seeming unlikely.

Among other factors, near-constant changes in U.S. trade policies since January 2025 have eroded confidence in the robustness of the U.S. economic and legal systems and created uncertainties for domestic and international businesses and investors alike. Even without the U.S.’ intensified “America First” mercantilism under the Trump administration, an emerging new world order strongly suggests that America’s unipolar dominance is waning and will eventually, perhaps sooner than predicted, fade.

This issue brief examines the current state of the U.S.-Europe relationship and possible EU and U.K. responses to fluctuating U.S. policy. It explores two main questions: 

• Why is the transatlantic alliance unlikely to be fully restored in the coming years and thereafter?
• Why would such a shift be highly detrimental for both Europe and the United States, now and onward?

Changing US Tariff and Trade Policies

Understanding US Tariff Policy Goals

Current U.S. economic policies purportedly focus on efforts to encourage enterprises that are manufacturing goods for the U.S. domestic market to produce those goods in the United States rather than in the territories of U.S. trading partners, whether allies (e.g., the EU, U.K., South Korea, Japan, and Australia) or perceived adversaries (e.g., China, currently along with India, Brazil, and South Africa). The Trump administration’s tariff-based approach is intended not only to strengthen American manufacturing but also to boost new investment and job creation and raise government revenue.

A further goal is to cause trading partners, including the EU, to reduce their trade surpluses with the United States and nontariff barriers, although the April 2025 “reciprocal” tariffs apply to countries that have a trade deficit with the United States, such as the U.K. Additionally, the Trump administration’s demands that major U.S. trading partners substantially increase their investments in the United States — despite the tens of billions of dollars already invested — have also been key elements of mostly one-sided trade deals.

Current US Tariff Rates

As of mid-February 2026, tariffs on most U.S. imports from the EU were assessed at 15%, while those from the U.K. were mostly subject to 10%. Importantly, automobiles and auto parts were included at 15% and 10% for the EU and U.K., respectively, and but there were exceptions at 50% on steel, aluminum, and copper, including fabricated products. While the U.K. had been promised lower rates on steel and aluminum, the U.S. has yet to move forward with this pledge. However, the U.S. Supreme Court on Feb. 20 held that the broad imposition of tariffs on over 180 countries under of the International Emergency Economic Powers Act (IEEPA) was unconstitutional. This ruling did not affect the high tariffs on steel, aluminum, and certain other key products, as the tariffs were based on other statutes.

Consequently, The Trump administration decided immediately to impose tariffs on most foreign nations at a level of 10%, with a possible increase to 15% pending as of the time of this writing. The 15% rate — if applied to the EU and the U.K. — would conflict directly with their earlier trade deals with the U.S. It can be assumed that the U.S. is in confidential discussions regarding full compliance by the U.S. with these two trade deals, which are not occurring even at 10%. 

Overall, this most recent fluctuation in U.S. trade policy intensifies the weakening of the transatlantic relationship, as government and stakeholder uncertainties for the U.S.’ closest allies and elsewhere are expected to continue, at least, for the next five months and likely longer.

Prior to the Supreme Court decision, tariffs on other U.S. trading partners ranged from 10% for most countries in Africa and Latin America, 18% for India, 35–50% for China, to 50% for most of Brazil’s imports. Numerous specific exceptions to these tariffs existed that had been negotiated by foreign producers or enterprises, such as for iPhones and other electronics, which entered at lower rates or a zero rate. 

Only goods that meet United States-Mexico-Canada Agreement (USMCA) rules of origin from Canada and Mexico enter the United States duty-free as a general rule, while non-USMCA compliant imports from Canada and Mexico have been subject to 35% and 25% tariffs, respectively. Currently, the rate for those imports is also 10%.

Economic Implications for the EU and UK

The weighted average of applied U.S. tariffs after Feb. 22 amounted to approximately 13.5%. This is about five times the average U.S. Most-Favored-Nation (MFN) tariffs, which were in the 2.5% range in 2024, apart from those placed on China. Nor is there any assurance that tariffs on some or all European countries’ exports will not change again.

As a key example, on Jan. 16, 2026, Trump threatened to impose new tariffs on countries that opposed his efforts to acquire Greenland — a group that includes Denmark, Norway, France, Germany, the U.K., the Netherlands, and Finland. One day later, he promised to increase tariffs on the group by 10% on Feb. 1, and to 25% on June 1. For the first time since April 2025, the EU seemed prepared to retaliate, with 93 billion euros ($109 billion) in tariffs or use of the EU’s “anti-coercion” mechanism, which would limit U.S. companies’ access to the EU market. Likely due to the EU’s response and the subsequent stock market drop, Trump reversed his Jan. 16 tariff threats, asserting that he and Secretary General of NATO Mark Rutte had reached a “framework of a future deal with respect to Greenland,” without providing specifics.

The adverse impacts of U.S. tariff policy impacts over the past year have been largely predictable. For the EU, exports to the United States decreased by 10% from July 2024 to July 2025. For the U.K., the decrease during approximately that same time span was 6.5%.

Federal Reserve

Beyond trade per se, the Trump administration’s repeated efforts targeting the Federal Reserve Board and Chairman Jerome Powell could have broad impacts not only on the Fed’s integrity and independence but also on foreign confidence in the U.S. dollar. For example, in January 2026, the Department of Justice opened a criminal investigation into Powell, based on specious allegations that he shared falsehoods regarding renovations to the Fed’s headquarters.

In response, a group of former Fed chairs and U.S. Treasury secretaries released a statement in support of Powell, noting: “This is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies more broadly. … It has no place in the United States, whose greatest strength is the rule of law, which is at the foundation of our economic success.”

Rules of Trade

A recent analysis from the Council of Foreign Relations speaks to the international implications of the U.S.’ discounting of established trade rules: “The United States is charting a new course on trade, but it is casting aside fundamental rules that have underpinned the global trading system in the process. That is pushing some of its closest allies away and could further fragment trade rules. The Trump administration has signed a handful of new trade deals and is likely to increase pressure on trading partners next year to make those deals deliver (or walk away from them if they do not).”

The impact of reduced U.S. adherence to the rule of law in its relations with the EU and U.K. beginning with disregarding the MFN tariffs agreed to by the United States in 1995 and unilaterally demanding large quantities of foreign investment, is difficult to assess at the present time. Yet, in both the medium and long term, recent U.S. actions could further erode the transatlantic alliance. Similarly, the U.S. threat to acquire Greenland by force if necessary — a direct violation of international law — may also have placed a lasting strain on U.S.-Europe ties.  

Future of US Trade Policy 

Looking ahead, a future U.S. presidential administration might seek to mitigate the new, substantial tariff rates placed on allies, such as the EU and U.K., along with Mexico, Canada, South Korea, Japan, and Australia — all of the latter of which, except Japan, have longstanding free trade agreements (FTAs) with the United States.

Some mitigation efforts are already underway in U.S. Congress. In February 2026, the House of Representatives voted to rescind tariffs on imports from Canada, yet in the unlikely event that the Senate were to follow suit, the legislation would be vetoed by Trump. However, Congress seems to demonstrate little support for a return to U.S. MFN tariffs averaging under 3%, particularly for steel, aluminum, and automobiles, although some experts posit that U.S. tariffs could be reduced to near zero in 10–20 years.

In this brief’s view, the low U.S. MFN tariffs will likely not reappear, in part because returning to the previous, more open trading system would mean forfeiting a major source of government revenue.

New Trade Partnerships in the EU and UK

The EU’s Free Trade Agreements

Under such circumstances, it is essential for the EU to promptly develop alternative export and import relationships to lessen the adverse impacts, including uncertainties, of reduced trade with the United States.

A positive first step took place in January 2026, when after 25 years of negotiations, EU members approved the signing of an FTA with the Mercosur nations, which include Argentina, Brazil, Paraguay, Uruguay, and soon Bolivia. Importantly, the EU-Mercosur Agreement must also be approved by the European Parliament before it can enter into force. However, even in the face of extreme trade and territorial threats from the United States, six of the EU’s 27 members declined to support approval, with France, Poland, Ireland, Hungary, and Austria strongly objecting and with Belgium abstaining. Required parliamentary approval should also be regarded as less than certain; a majority of the Parliament have already referred the agreement to the EU’s Court of Justice, which could have delayed the entry into force of the accord by two years or more.

However, on Feb. 27, the EU Commission decided to put the EU-Mercosur Agreement into force provisionally, which marks progress toward the EU’s efforts to promptly develop new trade relationships to diversify trade away from the United States. The decision means that the accord could enter into force in as little as two months. There is ample precedent for the EU Commission’s use of the provisional application route. Among others, the EU-CARIFORUM Economic Partnership Agreement has been in provisional force since 2008, and the Comprehensive Economic Trade Agreement between the EU and Canada since 2017. 

Also, after multiple years of negotiations, the EU concluded an FTA with India on Jan. 27, 2026. The EU Commission’s provisional treatment of the EU-Mercosur Agreement raises the possibility of similar accelerated treatment of the agreement with India even if it faces opposition from France and several other members.

Further on the positive side, in November 2025, the EU and the members of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) agreed on a trade and investment dialogue, a first significant step that will be a multiyear process. If the two FTAs enter into force, and CPTPP discussions are diligently pursued, they could provide the EU with significant alternatives to trading with the United States in the years ahead.

The UK’s Trade Challenges

The U.K. became a member of the CPTPP in December 2024. They also concluded a trade agreement with India in July 2025. Going forward, the greatest challenge for the U.K. will be strengthening its trade relationship with the EU, particularly after the U.K.’s economically and politically misguided Brexit referendum that lead to the country’s withdrawal from the EU in 2016.

Recommended Internal Reforms for the EU

A significant challenge to the EU’s economic viability is the critical need for internal reforms, particularly ones that deepen its single market. An analysis from the International Monetary Fund estimated that the continuing nontariff barriers among the 27 EU member are equivalent to tariff barriers of 44% for goods and 110% for services. Regulatory simplification is also considered long overdue by many observers.

In a similar vein, this brief suggests that the EU would benefit from eliminating the concept of directives and focus on regulations, while continuing efforts to curtail environmental, social, and governance (ESG) directives that began in October 2025. EU directives are more akin to general obligations that must be implemented under members’ domestic laws within five years. However, this five-year period is often breached, and subsequently, there is a lack of uniformity among how and when these national directives are implemented into law. This results in further divergencies among EU members that may hinder intra-regional trade. EU regulations — which function similarly to U.S. federal laws — are immediately binding on all members and would avoid the issue of uneven implementation.

Due to the U.K.’s withdrawal from the EU, what was often a moderating voice in EU internal discussions no longer maintains the same presence, weakening both the EU and U.K. politically and economically.

US-Europe Political and Legal Landscape

Currently, the United States and Europe disagree on several fronts to such an extent that the post-World War II transatlantic alliance is significantly fractured. U.S.-Europe relations have reached a point where its recovery, if pursued, would be a difficult and lengthy process.

US Withdrawals From International Agencies

For example, the EU and U.K. are still supporters of the multilateral system, including the World Trade Organization (WTO), the United Nations and its agencies, and the Paris Agreement, among others. Since January 2025, the United States has withdrawn for a second time from the Paris Agreement and from dozens of U.N. Agencies, such as the World Health Organization.

Additionally, current U.S. backing of the WTO is increasingly conditioned on its reinvention along lines supported by the United States. With the WTO in particular, the Trump administration has contravened international trading rules, such as those providing for MFN treatment, tariff bindings, discrimination between domestic and imported goods, and those applicable to regional trade agreements.

Europe’s Place in US ‘National Security Strategy’

The Trump administration’s released a new “National Security Strategy of the United States of America” (NSS) on December 2025, which articulated an inaccurate and particularly disparaging view of Europe’s status. More specifically, the NSS states: “[Europe’s] economic decline is eclipsed by the real and more stark prospect of civilizational erasure. The larger issues facing Europe include activities of the European Union and other transnational bodies that undermine political liberty and sovereignty, migration policies that are transforming the continent and creating strife, censorship of free speech and suppression of political opposition, cratering birth rates, and loss of national identities and self-confidence.”

Presumably, most Europeans, despite being aware of other shortcomings, would not recognize the characterizations outlined in the 2025 NSS. As Martin Wolf in the Financial Times clarifies, European democracy, free speech, and other factors as noted above largely remain strong, even as the Trump administration claims the opposite. Additionally, the NSS expresses the aim of promoting “patriotic European parties,” which likely refers to right-wing groups across Hungary, Germany, France, and the U.K., among others.

This is also not the Trump administration’s first incursion targeting either Europe or the EU. In 2018, during his first term, Trump claimed, “The European Union was formed in order to take advantage of us on trade, and that’s what they’ve done.” His accusation was deemed false by the New York Times, along with many other experts. As its official site states, the EU was formed “[w]ith the aim of ending the frequent and bloody conflicts that culminated in the Second World War.”

It remains unclear if the Trump administration’s past and present accusations against Europe could serve as a pretext for future trade sanctions.

Europe’s Military and Defense Concerns

On the military and defense side, four major changes are affecting European security: 

• The future of NATO has been called into question by the U.S.’ threats to acquire Greenland.
• Europe itself rather than Europe in partnership with the United States has become primarily responsible for the defense of Ukraine.
• The 2025 NSS suggests that the U.S. commitment to the safety and support of countries in Europe and Asia will be subordinated to its new focus on the Western Hemisphere.
• The EU and U.K. are pursing military and defense spending increases to mitigate reliance on the United States.

NATO

Full U.S. support for NATO has been in doubt for at least a decade, fueled in part by many members’ unwillingness to make a significant contribution — at least 2% of a country’s GDP — to their own defense at a time when the costs of U.S. defense outlays were rising. During his second term, Trump has pressured NATO to raise this 2% threshold to 5%. For recent administrations, the U.S. government’s concerns over the Chinese military threats in Asia seem in some respects to have displaced the prior focus on Europe, at least until Russia invaded Ukraine. While the Russia-Ukraine war has boosted public support for NATO, the trend is not necessarily determinative of current U.S. policies.

Ukraine and US Ally Support

However, while European nations are now expected to shoulder more of Ukraine’s defense burden, the U.S. was providing security guarantees and some other assistance as of January 2026. While Ukraine is not a NATO member, some experts worry that if Russia is not countered in Ukraine, it could intervene in other NATO members, such as the Baltic states, under similar pretexts that Russia espoused to justify its invasion of Ukraine. Such concerns may have been heightened by the U.S.’ “National Defense Strategy,” which was publicly released on Jan. 23. Specifically, the strategy focuses on China’s threat in the Pacific and states that Russia is a “will remain a persistent but manageable threat to NATO’s eastern members for the foreseeable future.”

Most significant among the obligations in Article 5 of the 1949 North Atlantic Treaty is its unequivocal statement on NATO countries’ military responsibility to its members. Article 5 states: “The Parties agree that an armed attack against one or more of them in Europe or North America shall be considered an attack against them all and consequently they agree that, if such an armed attack occurs, each of them, in exercise of the right of individual or collective self-defence recognised by Article 51 of the Charter of the United Nations, will assist the Party or Parties so attacked by taking forthwith, individually and in concert with the other Parties, such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area.”

Whether or not the United States under present circumstances would promptly help to defend Lithuania, for example, if Russia invaded, seems uncertain.

In the event that the United States, despite the recent détente, were to use military force to capture Greenland — the territory of a NATO member, Denmark — NATO’s survival would be highly unlikely, as the EU Commissioner for Defence and Space Andrius Kubilius has asserted. Even if the Trump administration can achieve its goals with Greenland through economic and political intimidation or through good faith negotiations — with the former seeming more likely than the latter — the integrity of NATO as a transatlantic alliance may be irreparably compromised. In the medium and long term, the primary beneficiaries of NATO’s fractured position will be Russia and China.

US Focus on the Western Hemisphere

Other aspects of the NSS are and should be of serious concern for Europe. Unlike the first Trump and Biden administrations’ NSSs that focused on major power challenges from China and Russia, the 2025 version adopts a more conciliatory tone with the two U.S. adversaries. More significantly, the NSS endorses “global and regional balances of power,” and as experts have noted, this statement explains why the NSS focuses on the Western Hemisphere as a sphere of influence for trade, immigration, and regional security challenges.

Per this brief’s analysis, this declaration in the 2025 NSS may also partially explain why the United States was prepared to strike Venezuela to remove Nicolás Maduro, seeking directly to secure Venezuelan oil and indirectly to reduce Russian and Chinese influence. The document’s language also helps to rationalize — as further evidence of the “Donroe Doctrine” or the “Trump Corollary” as noted in the 2025 NSS — that Trump’s expansive view of U.S. influence centers on the Western Hemisphere.

The State Department’s “Agency Strategic Plan” (SDASP) for 2026–30 also confirms the shift reflected in the NSS toward the Western Hemisphere, while taking a different and, perhaps, more measured but still condescending tone to the transatlantic alliance: “The nations of Europe are America’s oldest allies. The United States was born of Western European parentage and, far beyond mere geopolitics, we are bound to Europe through shared traditions, cultural heritage, political values, and familial ties. To succeed against today’s challenges, the United States must help European partners recommit themselves to a new American transatlantic civilizational alliance.”

In addition, while advocating the transfer of primary “responsibility for conventional European defense to allies,” the SDASP’s commitments inter alia to “defend civilizational values and reassert national sovereignty” remain.

Europe’s Increased Military Spending

Given these current risks to European security and its strong opposition to the Greenland-related tariff threats made by Trump, most European nations realize that they should significantly increase their defense spending and military preparedness. This funding increase should also be accomplished as quickly as possible, even if the process requires five years or more to fully implement.

Some progress is being made in this regard. EU members’ defense expenditures in 2025 amounted to 381 billion euros ($448 billion), indicating a growth of 11% compared to 2024 funding levels and a growth of 62.8% compared to 2020. For the U.K., defense spending is expected to increase from 62.2 billion pounds ($83.86 billion) in 2025–26 to 73.5 billion pounds ($99.1 billion) in 2028–29, an annual increase of 3.8%. However, the U.K.’s current spending plan is concerning, as much of their spending is backloaded to the 2030s, and the British military is more dependent on the United States than other European militaries.

Reliance on the United States for European defense is no longer a viable option, as the Trump administration’s recent actions and statements make clear. Also, whether the current rates of military spending increases in the EU and U.K. are sufficient to develop a credible European defense capability remains to be seen.

New World Order and New Transatlantic Concerns

Europe, like the rest of the world, is facing a new world order, as stated by Trump and other global leaders. Seemingly unparalleled changes to international relations and trade are being brought about not only by the Trump administration’s “America First” policies, but also by the potential imminent rise of China toward becoming the world’s leading economic — and likely military — superpower.

As this brief has noted throughout, the United States risks weakening its own position through a series of domestic policies, including: attacks on major universities; far-reaching reductions in research funding; scrutiny of scientifically established vaccine policies and other essential elements of U.S. public health; efforts to curtail the Federal Reserve’s independence; closure of the U.S. Agency for International Development, Voice of America, and the soft power they represent; excessive force and, at times, deadly tactics deployed by Immigration and Customs Enforcement (ICE) agents; and contentious treatment of allies, particularly through current U.S. trade policies.

In the long term, China stands to be the major beneficiary of a more vulnerable and less prosperous United States. Consequently, Europe will be adversely affected through increased defense spending, reduced access to the U.S. market, broader dependence on China as a trading partner, and the fracturing of the post-World War II transatlantic alliance. Another potential result of this shifting world order could be a broader and more rapid descension of the West and ascension of the East, particularly Asia, as forecasted by Samir Puri’s 2024 book, “Westlessness: The Great Global Rebalancing.”

However, Europe can take action to mitigate the changes brought about by the possible erosion of the transatlantic alliance and the simultaneous weakening of the United States and rise of China. They, along with other NATO members such as Canada, should realize as Canadian Prime Minister Mark Carney observed on Jan. 23, 2026, that “a rupture in the world order” has occurred and that “the middle powers must act together.”

The question remains whether the EU and U.K. have the political will to increase their own defense capabilities; conclude agreements that will facilitate the opening of new markets and supply chains, including closer EU-U.K. economic relations; and implement internal reforms that will facilitate intra-regional trade in goods and services, reduce avoidable bureaucratic barriers and delays, and improve productivity. If Trump’s attempts at intimidation over Greenland and through one-sided trade deals do not encourage Europe to move from debate to action, there exists little promise for the durability and longevity of the transatlantic alliance. The EU Commission’s determination to put the EU-Mercosur Agreement into effect provisionally is a first major step for Europe’s move toward action.

This publication was produced by Rice University’s Baker Institute for Public Policy. Wherever feasible, the material was reviewed by outside experts prior to release. Any errors or omissions are solely the responsibility of the author(s).

This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author(s) and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s) and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.