Trump’s Three Options to Turn the Screws on Europe

Ongoing reports and analysis

Pity U.S. government statisticians come February, when they release the trade data for 2025—with numbers that are unlikely to please U.S. President Donald Trump. Despite his insistence that tariffs reduce the U.S. trade deficit, available data suggests otherwise. Over the first 10 months of 2025, the goods deficit widened by $77 billion, or nearly 8 percent, year over year. This trend is unlikely to have reversed once the November and December numbers are in.

An irritated Trump might ask which economy is the biggest perpetrator. For the first time in recent memory, the answer will not be China. Instead, the biggest U.S. trade deficit during the first 10 months of 2025 was with the European Union—around $190 billion, compared to China’s $175 billion. And while China’s surplus with the United States shrunk by 28 percent during this time, the EU’s remained broadly stable compared to the same period one year earlier.

Pity U.S. government statisticians come February, when they release the trade data for 2025—with numbers that are unlikely to please U.S. President Donald Trump. Despite his insistence that tariffs reduce the U.S. trade deficit, available data suggests otherwise. Over the first 10 months of 2025, the goods deficit widened by $77 billion, or nearly 8 percent, year over year. This trend is unlikely to have reversed once the November and December numbers are in.

An irritated Trump might ask which economy is the biggest perpetrator. For the first time in recent memory, the answer will not be China. Instead, the biggest U.S. trade deficit during the first 10 months of 2025 was with the European Union—around $190 billion, compared to China’s $175 billion. And while China’s surplus with the United States shrunk by 28 percent during this time, the EU’s remained broadly stable compared to the same period one year earlier.

It’s easy to imagine Trump ordering his officials to devise a plan to redress the imbalance with the EU. The administration’s recent track record suggests three potential policy proposals: engineering a depreciation of the dollar, shifting defense expenses to Europe, and clinching deals with Russia. These plans could be wild cards for trans-Atlantic relations in 2026.

In a 2024 essay, U.S. Federal Reserve Board member Stephen Miran outlined the contours of the next trans-Atlantic battle. Miran’s thesis is simple: An overvalued dollar widens the U.S. trade deficit by making imports too cheap and exports too expensive. Consequently, U.S. officials might conclude that

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