Pacheco: How the US is squandering its closest ally

After WWII, the U.S. dedicated time and resources to reconstruct a severely damaged Europe, devastated by the war. The Marshall Plan was formed, which provided funding, resources and expertise to European nations in their effort to reconstruct not only infrastructure, but also economies. During the 80 years since the war ended, the European Union, or EU, was formed to create unity among European nations in terms of trade, common diplomacy, security and the goal of establishing long-lasting peace. Nations that trade and pursue common diplomacy do not tend to fight each other.

During this time, the U.S. supported the creation of the EU and its expansion for several reasons. First, the U.S. needed to secure peace in Europe and have a counterweight against the expansion of the Soviet Union. The EU would provide this buffer. Second, immediately after WWII, the U.S. accounted for approximately 50% of the total world’s economy. This percentage would migrate to approximately 40% in 1950, but the U.S. still accounted for 80% of the world’s exports. 

The U.S.’s ability to scale up industrial production was evident in its mass production of planes, tanks, ships, munitions and supplies for the war effort. This same ability translated into U.S. companies being able to mass produce products such as cars, refrigerators, consumer electronics and food. There were only so many of these products that Americans could consume. Therefore, the U.S. needed allies that would buy American products, thus helping to grow the U.S. economy and putting Americans to work through exports. The U.S. worked to create the EU as an ally with which it could trade. Today, old enemies such as Germany and Italy are some of the closest U.S. allies.

In the years following WWII, the U.S.-EU trade relationship has flourished. In 2024, the total value of trade between both entities was $1.5 trillion, or $4.9 billion daily. This represents the largest trade relationship in the world, accounting for approximately 30% of global trade. 

From a diplomatic standpoint, the U.S. and EU have strongly supported each other against rogue nations and wars. The EU stood alongside the U.S. after 9/11 to hunt terrorists and halt the killing of innocent people. Some of the key military bases that the U.S. controls are on EU Soil. The U.S.-EU relationship has been solid and one of mutual respect, until now.

Since taking office, the Trump administration has disparaged the EU, imposed tariffs on EU imports and insulted European leaders. President Donald Trump has publicly stated his intent to take over the island of Greenland from Denmark, either through purchase or force, although it appears he is backing down on the latter tactic. EU leaders have overwhelmingly criticized the taking of territory from one of its members. In response, Trump threatened to impose tariffs on EU members if they refused to back his position. This drama continues daily in the press.

Now, the latest dust-up involves Trump’s attempt to form a Peace Council, originally intended to bring nations together to reconstruct Gaza and to assist its residents. In a short period of time, the Peace Council has evolved into being a worldwide entity. Members would be required to pitch $1 billion into a pool, which Trump would control and which he would perpetually preside over even after he leaves office. Needless to say, EU leaders have shied away from joining this group, which strikes me as being supremely ironic. Since when don’t the Europeans want to join the U.S. in peace efforts? The answer is, when there is mistrust.

In the past year, the U.S. has done more to damage its relationship with the EU and to sow mistrust than in the past eight decades. Both the U.S. and the EU have strongly supported the creation of the United Nations and its funding, in order to promote world peace and to improve the lives of people around the world. The Europeans view the formation of a worldwide Peace Council as undermining the mission of the United Nations, which Trump has consistently disparaged.

Trump’s tariff threats have forced European leaders to bring into open discussion the implementation of their anti-coercion instrument against the U.S., commonly referred to as its “trade bazooka.” The bazooka was created as a response to economic coercion against the EU, and involves measures such as tariffs, trade restrictions, and outright boycotts. At a projected GDP of $31.8 billion in 2026, the U.S. is still the world’s largest economy. However, with a projected GDP of $22.5 billion in 2026, the EU is the world’s second-largest economy. Applying its bazooka measure against the U.S. would cause serious damage to American exporters. 

Imagine the damage that would be caused if these two behemoths started a major trade war. Who would have imagined a year ago that two of the strongest allies in the free world would be threatening each other in this manner? The issue again reverts back to trust. The aggressive and erratic stance the U.S. has recently pursued against the EU has damaged trust and the strong relationship that both entities have strived to build. It is going to take a long time to rebuild the trust that was eroded within a year. Nothing that countries such as Russia and China have attempted over the decades has ever been successful in splitting the U.S.-EU alliance. Ironically, it is the U.S. itself that is doing this. Our adversaries have to be looking upon it in amazement and joy.

Jerry Pacheco is the executive director of the nonprofit International Business Accelerator. He can be reached at (575) 589-2200 or jerry@nmiba.com.