Donald Trump has now introduced a 30% general tariff on imports from the European Union, effective next month. The continent is in shock, but the pause on retaliatory tariffs announced yesterday by Ursula von der Leyen is a wise move. Really, any counter-measures from Brussels would be disastrous.

These new tariffs are higher than those proposed in April. Trump’s European opponents keep underestimating him, and the outcome is a set of measures which are far more damaging than the initial 10% general tariff. There is no shortage of hotheads within the EU policy sphere who are advocating retaliation, and von der Leyen is receiving conflicting messages from member states. Friedrich Merz has predicted catastrophic consequences for the German economy, and is urging Brussels to negotiate further. Meanwhile, Emmanuel Macron and other leaders are pushing for a tougher response.

EU trade ministers are now weighing up counter-tariffs, but retaliation threats only make sense if they are for real. This isn’t a game of poker. It is not in the interest of Brussels to retaliate, and therefore it should not make threats to this end. Any fightback would prompt America to respond in kind, and Europe would end up in a trade war with tariffs of 50% or higher — a level at which transatlantic trade would collapse. As the euro rises, Brussels is facing multiple trade shocks — from US tariffs, as well as cheaper imports from the rest of the world including China.

All of this makes a costly economic accident far more likely. China’s strong reaction to the April tariffs impressed EU commentators, who were persuaded to advocate similar retaliation. However, the situation with America and China could not be more different. The US has signalled readiness to cut a deal with Beijing because it depends on imports of Chinese rare earth magnets, for which it has no replacements. Europe will struggle to pull off a similar stunt. For a start, the EU has nothing on which the US is nearly as dependent. Gucci handbags, BMWs and champagne are nice luxuries, but hardly existential resources. And a crackdown on US digital companies is less of a threat than it would appear, because the EU has no alternative suppliers.

Brussels also has to be mindful of the broader security implications of a trade war. It cannot boycott F35 purchases or deliveries of ASML semiconductor manufacturing machines, given the impact on national security. Given Europe’s dependence on the US for protection, there is unlikely to be a situation in which strong trade retaliation yields a positive outcome. The best response would be to take the tariffs on the chin, and instead focus on long-term strategic decisions.

One such decision would be to reduce the EU’s dependence on export surpluses for growth, which constitutes the bloc’s single biggest geo-economic vulnerability. Another move would be to lead a global “coalition of the willing” to agree a new multilateral trade system. Of course, this is easier said than done. Brussels is in its current unfortunate position because it keeps kicking the can down the road. The export dependency was a policy which started with the eurozone’s sovereign debt crisis, while the adverse effects of Europe’s dependence on the US were also recognised a long time ago. Now, it’s all coming together.

This is an edited version of an article first published in the Eurointelligence newsletter.

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Wolfgang Munchau is the Director of Eurointelligence and an UnHerd columnist.

EuroBriefing

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China is trying to catch up with America on artificial intelligence. The Wall Street Journal has reported that Zhipu AI — one of China’s six “AI tiger” LLMs — has released a new model that can rival leading US systems, including Anthropic’s Mythos, in cybersecurity tasks such as pinpointing security bugs. While this marks a milestone in China’s drive to catch up with Western AI capabilities, strong performance on a single benchmark does not mean it has taken the lead. Chinese models still lag behind their Western counterparts in broader capabilities, such as autonomous operation. Skepticism is therefore warranted before resorting to hysterical conclusions, but complacency about the geopolitical implications of China’s AI advances would be an even greater mistake.

On the infrastructure side, Chinese AI is still constrained by access to advanced chips, with American labs way ahead in computing capacity as well as investment. Analysis from earlier this year suggests that Chinese models are likely to be at least a few months behind those in the US. But they are still continuing to make progress, or that the geopolitical importance of AI will be decided only by whose LLM has ventured deeper into the technological frontier. The practical applications of AI, countries’ to capture foreign markets, and the application of AI into the real economy will matter just as much.

Here, China may hold an advantage. As with its dominance across many critical supply chains, Beijing may not need to produce the most advanced AI systems — only those that are affordable and widely deployable. In doing so, it could consolidate global influence by supplying functional, low-cost AI at scale.

Beijing seems to be pursuing exactly that path, developing an AI “open-source” strategy that offers affordable, widely available AI models for companies and individuals to use and modify as they wish. The production of the DeepSeek AI model, which matched the performance of Silicon Valley tools such as ChatGPT at a fraction of the cost for users, created goodwill among Chinese models with developers.

The four most popular models on OpenRouter, an AI hardware platform for developers, are now all Chinese. The goal for China is not only to win the frontier-model race, but to make its systems the default layer of AI adoption across industries and global markets. For most economies, the choice is increasingly between an affordable tool they can deploy now and a more robust one that may be out of reach.

And while the countries adopting Chinese models may be exposed to political pressure and cyber threats from Beijing, safer and more capable alternatives matter little if they are unaffordable. American AI companies are already under pressure to monetize products whose operating costs are rising. If Chinese open-source models become the cheap default for startups, universities, governments and businesses across the developing world, then America’s AI lead will be eroded from below.

Perhaps more concerning for America in the long run is how AI can give Chinese manufacturing even more strength, through the ongoing integration of AI as a general-purpose technology. China’s new Five-Year Plan mentioned AI more than 50 times and includes an “AI+” action plan aimed at spreading AI across the economy.

Beijing has been pioneering automation of its critical infrastructure for years, with promising recent results in increasing warplane production capacity. In that regard, China’s open-model strategy and manufacturing dominance will reinforce each other. Cheap, adaptable models accelerate deployment across the real economy while those deployments generate real-world data and use cases that can feed back into further model improvement.

The United States should not dismiss the importance of its lead in the AI race. That lead worries Beijing, not least because a more automated Chinese economy would also become more vulnerable to AI-generated cyber threats. But nor should Washington assume that China cannot catch up with American capabilities over time.

This AI competition represents part of a broader struggle over tech supply chains and geopolitical influence. Decisions over whether to adopt US or Chinese models could produce a more fragmented global reality, with different regions relying on different cloud providers, chips and security structures. The result will likely be a global economy which is divided into competing spheres, rather than one which produces a single winner.

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Miquel Vila is a political and geopolitical risk consultant focusing on industrial strategy, critical infrastructure and global supply chains.

miquelvilam

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