Published by BusinessToday, image by BusinessToday.
Trump’s mistaken about the original and founding purpose of the European Union (EU).
He’s been reported to have said that the EU was founded to “scam” the US (the word which Trump used was coarser).
But first, what is Trump 2.0’s true or real game plan in relation to the tariffs?
Whilst his ostensible and overt plan (i.e., the goal) is to lower the trade deficit between the US and the rest of the world (ROW) and revive American manufacturing, it could well be argued that his ulterior/underlying motive and covert plan (i.e., the means) is to do two broad things (“killing two birds with one stone”) simultaneously.
And that is to induce:
- Deflation – the initial step
- Compress wages (labour costs) by inducing a deflationary “spiral” which will also at the same time intended to counteract/counterbalance any inflationary pressures (especially in relation to the post-first-round effects). And, of course, there’s also the reshoring “strategy” (if at all).
According to the US Bureau of Labor Statistics’ 2023 Manufacturing Employment Report and the Boston-based Global Manufacturing Cost Competitiveness Report, American primary manufacturing costs ranked fourth from the bottom among 17 economies.
Labour costs in the US are 5 times those of Japan, 6.8 times those of South Korea, 8 times those of China, 10 times those of Malaysia, more than 12 times those of Thailand, and more than 14 times those of Vietnam.
- At the same time, the deflationary spiral will also result in debt deflation in the private sector – depressing the economy (decreased spending, increased unemployment).
Debt deflation allows for shorting the stock market (beforehand, by selling high and buying low, afterwards). This gives rise to suspicions of insider trading.
- Inflation – the final step
- This should (i.e., from Trump’s perspective) then “force” Jerome Powell to lower the federal funds rate (FFR). It’s highly likely that Trump may want the FFR to be near zero level (reminiscent of the aftermath of the Great Financial Crisis), supported by the revival of quantitative easing (QE).
- Reflating the economy would entail/imply not only a weaker and depreciating dollar (thereby boosting exports) but also a lower debt burden – both nominal (i.e., interest payments) as well as real (i.e., the principal payments). In short, Trump hopes to achieve debt inflation for his administration/government, i.e., the public budget.
These two components of Trump’s masterplan are critical to his “3-3-3” national economic strategy as outlined by Treasury Secretary Scott Bessent. It calls for reducing the fiscal deficit to (an arbitrary) 3%, boosting oil production to 3 million barrels per day and achieving 3% gross domestic product (GDP) growth (by 2028).
In other words, Trump (true to the ideology of his advisers and inner circle) wants monetary policy to do the heavy-lifting throughout his term (rather than limited to only the initial phase, for example). At the risk of over-simplification, fiscal policy would be mostly confined to tax cuts (via the – partial extension – of the Tax Cuts and Jobs Act 2017).
The thinking behind Trump’s “grand economic strategy” is simply a re-enactment of neoclassical economics 101 (pure and simple).
Where there’s now lower demand in the labour market (“loose”) due to a depressed economic situation and given that demand (x axial curve) plays the role of a price signal, the supply (y axial curve) will adjust accordingly – i.e., willingness to accept a lower nominal (but not necessarily real) wage. Hence, “the” equilibrium/equilibration or balance.
The Great Depression showed that this wasn’t the case.
The deflationary spiral didn’t restore the equilibrium.
Unemployment peaked at 25% by 1933 – the year that FDR (Franklin Delano Roosevelt) came into power in a huge landslide and first introduced his signature “New Deal”.
So, Trump is playing a his high-risk/high-stakes gamble or game with his deflation-inflation tactics.
But why is Trump also mistaken about the EU?
As pointed out by veteran British journalist Ambrose Evans Pritchard (“No Mr Trump, the EU was created to ‘screw’ Russia”, Daily Telegraph, February 27, 2025), the EU (and by inclusion and retrogression the European Community/EC, the European Economic Community/EEC, the Coal and Steel Community, etc.) was founded to counterbalance and contain the Communist bloc.
Declassified documents have demonstrated conclusively the role of the US in pushing for European integration even before World War Two had ended.
The Third Reich via Nazi finance minister and Reichsbank head Walther Funk had also prepared a similar post-war European economic integration blueprint. Intriguingly, after the war, the Office for Strategic Services (OSS) – forerunner of the CIA – helped to absorb many Nazis, including under Operation Paperclip (e.g., rocket scientist Werner von Braun).
According to Ambrose Evans Pritchard, “The Schuman Declaration, the founding text of the [C]oal and [S]teel [C]ommunity, was largely cooked up by US Secretary of State Dean Acheson in Foggy Bottom [the headquarters of the US Department of State in Washington, DC]”.
Declassified files also show that the OSS and later the CIA not only funded but directed the Euro-Federalist movement for decades (from the 1950s to the 1960s).
The EU’s founding fathers, the venerable Jean Monnet and Robert Schuman were all collaborators (as acknowledged even by Charles De Gaulle – who first coined the phrase, “from the Atlantic to the Urals”, i.e., beyond Ukraine.).
Contrary to right-wing conspiracy theorists in the UK as personified by the late Christopher Story (FRSA) who was popular/respected among the Bruges Group types and Thatcherite in the 1980s and 1990s (both in the Conservative and later on in UKIP circles after Nigel Farage wrested the party from founder Professor Dr Alan Sked), the EU was never a “left-wing” or Soviet Union (long-range) project to infiltrate and penetrate Western Europe.
Instead, the EU is more right-wing (i.e., neoliberal) in its ethos/outlook.
This can be clearly seen in the European Commission’s imposition on member-states via the Stability and Growth Pact (SGP)’s fiscal and budgetary discipline as exemplified by a) the 3% fiscal deficit principle and b) the 60% of GDP for government/sovereign debt limit – as part of the process of achieving ever-closer integration within an Economic & Monetary Union (EMU).
These two fiscal rules are especially stringently enforced within the euro area/eurozone vis-à-vis the single currency – the euro.
In other words, the SGP is eminently neoliberal (right-wing, Monetarist) in (economic) ideology.
In France, for example, the Monetarist (Milton Friedman’s) triumph (as part of the then wider trend as evinced in the US and UK also) over Keynesianism could be seen in the policy tussle between the Finance Ministry versus the General Planning Commission (Commissariat Général du Plan – now defunct) that was established under De Gaulle (“right-wing Keynesianism” or dirigisme) in the 1970s.
It bears mention too that the German ordoliberal tradition (“economist”) shares intellectual roots as Friedman’s Monetarism. Both schools of thought prized low inflation and stable money supply alongside fiscal discipline over other policy considerations. Germany’s schwarze null//“black zero”, i.e., balanced budget, is perhaps the modern or contemporary paragon (as embodied by Wolfgang Schäuble).
Now, the Marshall Plan was critical and pivotal for the foundations of the European project – as economic reconstruction was top priority. The US poured USD13.3 billion of aid (under the legislative auspices of the Economic Cooperation Act of 1948 passed by Congress) into Western Europe, including the then West Germany, to prevent and stem the advance of the Communist threat.
The roots of the re-industrialisation of Western Europe, including the West German Wirtschaftswunder (economic miracle, “Miracle on the Rhine”), are to be traced back to the Marshall Plan (which simultaneously provided access to the American market).
The re-industrialisation of Western Europe, of course, included rearmament.
Rearmament is where Germany (under the new Chancellor Friedrich Merz) and, by extension, the EU (under Ursula von der Leyen as the President of the European Commission) save face and evade their self-imposed inflexible/rigid fiscal rules as the expression of the very (constitutional) DNA of this imperial entity.
The justification/rationale/logic is none other than the threat of Russia – under Putin.
As it is, the EU’s economy is currently in doldrums. The euro area barely escaped recession with a 0.1% GDP growth and employment in the fourth quarter (Q4) of 2024. Trump 2.0’s tariff war (whereby the EU and Germany enjoy a trade surplus) will further dampen growth and outlook.
The European Central Bank (ECB) has recently cut its (benchmark) deposit facility rate (extending the continuation of its monetary easing – for the seventh time from last year) to 2.25%.
Germany – as the leading member – had been experiencing an export slump albeit on a moderating level year-on-year (yoy). Its economy contracted by 0.2% last year.
Rearmament, thus, becomes the “only” way out (politically acceptable stimulus) for the EU and, by inclusion, Germany to rejuvenate the economy.
This recalls the “script” of the Third Reich whereby the growth of its economy was engineered and driven by rearmament (of which the legendary banker cum technocrat Hjalmar Schacht played a critical/pivotal role in the early years).
The rearmament narrative demands the hyping up of imaginary/fantastical “threat” of Russian “expansionism” that’s reinforced by the clamping down on free speech and placing the populace of the EU under constant fear.
This of course applies to the UK too – with Prime Minister Keir Starmer aiming to ramp up the British economy via heightened military expenditure. The UK’s entente cordiale and resetting of relations with the EU will certainly be (partly) driven by closer military cooperation.
Just as Sinophobia is a staple in American politics, Russophobia is embedded in European alongside British political culture via the mainstream media (especially the right-wing broadsheets and tabloids).
In turn, Russophobia is grounded in the clash of civilisations (as mentioned in EMIR Research article, “A tale of two Europes – clash of civilisations?”, March 11, 2022). Mother Russia represents the “First Europe” (the original successor to the Roman Empire when the western part succumbed to the Gothic invasion – in fact the original name of Byzantium was indeed the Eastern Roman Empire).
Western Europe, especially in its post-Enlightenment and modern embodiment (i.e., liberal, progressive, radical secular), represents the “Second Europe” (rooted in the dialectical worldview of Hegel and Marx). Second Europe’s political traditions are best captured by Samuel Huntingdon’s Clash of Civilizations and Francis Fukuyama’s The End of History and the Last Man.
Second Europe is also hegemonic (i.e., in antithetical co-existence and tension with its liberal tradition).
And Russia stands in the way of Western hegemony as represented by the EU.
Like China, Russia also represents and offers an/the alternative architecture of international relations (IR) and international political economy (IPE) in the global system (aka the rules-based order embodied by international institutions such as the United Nations/UN, World Trade Organization/WTO, World Bank, etc) that’s (currently) underwritten by the US, UK and not least the EU.
Hence, Russia becomes a problem to be solved, so to speak.
Tragically, this includes the continuing “de-humanisation” of Russians (disturbingly reminiscent of the Nazi Germany’s Untermenschen trope aimed at the Slavic peoples also).
With the “division of labour” announced by the Secretary of Defense Pete Hegseth whereby the EU is to focus on containing Russia (via Ukraine) and with the US prioritising on deterring China in the Indo-Pacific, Trump has signalled his own turn towards military Keynesianism.
On the geoeconomic side, Vice President J D Vance has proposed a gigantic trans-Atlantic “single market and customs union” bloc with the EU.
The demilitarisation border/zone that’s proposed by the West would be just a sham – as NATO can still, e.g., outflank Russia from the Baltic member-states.
To reiterate, Trump’s wrong about the EU’s founding purpose.
The latter was indeed formed primarily to oppose the then Soviet Union (which ironically belonged to the same Second Europe in worldview once) and today against Russia (having reverted to its original legacy and historic past post-collapse of Communism in Europe and Eurasia) – not to scam the US.
Jason Loh Seong Wei is Head of Social, Law and Human Rights at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.
