This is an audio transcript of the FT News Briefing podcast episode: ‘Trump’s transatlantic divorce’
Marc Filippino
European leaders rushed this week to come up with a new defence plan to protect Ukraine without US leadership. The split reverses decades of transatlantic co-operation and interestingly, some markets are loving it. US stocks . . . not so much.
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This is Swamp Notes, the weekly podcast from the FT News Briefing where we talk about all the things happening in US politics. I’m Marc Filippino. And this week we’re asking: what are the costs of Trump’s transatlantic divorce? Here with me to discuss is a special guest. He’s the FT’s chief foreign affairs commentator and the host of the Rachmam Review podcast. Hey, Gideon.
Gideon Rachman
Hi.
Marc Filippino
So I wanna set the scene for this thing I’ve just called the transatlantic divorce. The news of the past week has been largely defence related, but there are also the tariffs US President Donald Trump threatened Europe with. He said that the European Union was made to, quote, screw the United States a little while ago. Vice-president JD Vance has criticised Europe for walking away from its values. What does this tell us about where things are headed between these two powers?
Gideon Rachman
Yeah, I mean, I think it’s pretty profound. Of course, Trump’s super unpredictable. And, you know, he may say very nice things about Europe next week, but the working assumption I think in Europe now is that the transatlantic relationship is in deep trouble and that Europe really is on its own now on security, that Nato is still alive in theory. But I don’t think anybody really believes that America can always be relied upon to come to Europe’s aid when it’s in trouble militarily.
Trump’s more or less said that on a few occasions. And the implications are that Europeans have to do a lot more for their own defence. And there are even sort of more serious implications. And there’s one way of thinking, which is, OK, America is no longer a reliable ally, and we have to defend ourselves. And the Europeans are doing quite a lot to try and do that. But then there’s an even darker view, which is that in some respects, America is now an adversary.
It’s not just ‘not a reliable ally’ drawn from things like Trump’s evident warmness towards Putin, his aggression towards Zelenskyy, the fear that Trump is gonna do a deal with Russia over the heads of the Europeans. The Vance speech in Munich, which you alluded to, Vance said he was speaking up for free speech in Europe, but in Europe it felt like he was speaking up for the European far right, who are regarded as a threat to democracy, and therefore, as a German politician said to me immediately after that speech, that was an attack on European democracy.
Marc Filippino
Yeah, and that distrust and adversarial nature really came through this week. Trump said he was gonna stop military aid to Ukraine and also stopped intelligence sharing. How big of a deal is that?
Gideon Rachman
A very big deal. I mean, I was in Kyiv, you know, about 10 days ago. To be fair, the Ukrainians could see the direction of travel and were already very concerned that they were gonna do that. And so it does have serious military implications for Ukraine, because one of the reasons they’ve been able to hold the Russians off, even though they have inferior forces in terms of manpower, is because they had very good intelligence provided to them by the Americans, largely.
And the other reason was that they had a lot of American equipment, in particular artillery shells. But also the other thing they’re very worried about not having now is air defences, because Russia’s strategy has been to basically pummel Ukrainian infrastructure, to try to destroy Ukrainians’ energy resources, and also to put their cities under threat with Patriot missiles supplied by the United States.
They were able to kind of, if not totally negate that threat, blunt it to some extent. The question is: can the Europeans fill the gap? We don’t quite know, but probably not completely. One thing that America really does provide uniquely is air defences — Patriots. The intelligence thing is a bit murkier. Can the French or another step in the gap? Maybe a bit. But yeah, it’s dangerous for Ukraine.
Marc Filippino
What about the German aspect of this? I mean, this week we saw Germany take a pretty unprecedented move, basically decided to approve hundreds of billions of euros to go toward defence spending. There’s talk of a Europe wide stimulus package, like these are big fiscal moves that Europe has not seen in a very, very long time. What does it mean for the bloc?
Gideon Rachman
Means a lot. I mean, I think that, you know, Germany is the largest economy and the largest industrial base. Their reluctance to spend and their kind of semi pacifist attitude to the world, result of the second world war, meant that they were a kind of big drag on European defence efforts. Now they’ve really done 180, and that’s huge in its implications because they’re much less indebted than, say, the French. The French have already have a public debt which is worth 100 per cent of GDP. The British are also at that level. Germans are only at about 60 per cent because they’ve been relatively frugal, so they have the capacity to borrow.
The markets trust them. And also it looks like they’re gonna put their weight behind European debt, which again, the Germans have been a big brake on. That has implications actually well beyond defence. It’s really one of the big next steps in European integration, which people have been arguing about for 20 plus years. The difficulty is timing. I mean, I think over time Germany, backed by the rest of Europe, can become a considerable military force. But they’ve let the military really run down suddenly in post-cold war era, and you can’t sort of bring it into existence overnight. So it’s possibly a 10-year project to really fill all the capabilities that America currently covers for them, and the question is: does Europe have 10 years?
Marc Filippino
Gideon, what does this mean from an economics perspective? Because the markets this week we saw a very large bond sell-off, potentially indicating that investors are excited about the economic growth that will come with defence spending. What did you make of that?
Gideon Rachman
Yeah, I mean, I think that one of the interesting things that’s been happening is the reversal of expectations. You know, I was at the World Economic Forum in Davos in January and everyone was saying, oh God, you know, the action’s all in America. No investor in their right mind would invest in Europe. Look at the American stock market. It’s gonna boom under Trump, whatever you think of him. And you know, on the contrary, the American markets are struggling and European markets are booming. I guess, you know, it just tells us again that obviously if markets were that predictable we’ll be very rich, you know.
You can’t tell how these things are gonna play out. But what I think they’re currently reacting to is the sense that defence spending will provide a kind of Keynesian stimulus to the German economy, which has been struggling, struggling partly because they are losing market share in China for machine tools for the automobile industry. And people thought, you know, what’s the way out of this? In fact, a French industrialist joked to me a year ago, well, it’s very clear, as he said, they can’t sell the cars, they’ll make tanks instead. (Marc laughs) And he didn’t say it with any great relish. You know, the French and others in Europe still have a kind of lingering suspicion of German rearmament. But I think that’s what’s happening right now. You can see the share price of Rheinmetall, which is, you know, the main German armaments manufacturer, really soaring.
Marc Filippino
So Gideon, a lot of what we’ve been talking about is Europe becoming self-sufficient and laying the groundwork to be independent of the US in many ways. Is it possible that Europe walks away with this better than it was before Trump?
Gideon Rachman
Well, that’s the hope, I don’t know. I mean, I think that, you know, there is a sort of determination in Europe now to try and make this work. And I think over the long run, possibly. But, you know, Europe does have all sorts of vulnerabilities as Trump doesn’t hesitate to point out. The Europeans enjoy a trade surplus with the United States. So in theory, if there’s a trade war, this side of the Atlantic is more vulnerable. You know, France, Britain are very indebted countries, Italy, so on. They don’t have a reserve currency to back that up. They also have welfare programs that are hugely expensive and are becoming more expensive. And they can talk a good game about spending more on defence, but how they fund it, you know, to some extent issuing common European debt is a new source. The other possible sources confiscating these 200-300bn in Russian assets, maybe handing them over to Ukraine or maybe using them for European defence or a bit of both.
So there are some ways, but I think one of the things that European politicians are beginning to worry about is, let’s say we cut welfare to fund defence. Does that then fuel the rise of the political extremes that we’re trying to stop? So Europe does have real weaknesses, and I think Trump can play on those. But I think that one of the things and moods shifts very quickly. But the sense of a Trump’s America that holds all the cards is diminishing a little bit, because Trump’s policy approach seems so chaotic, exemplified by, you know, tariffs on Canada one day, then off the next day, then on again the next week and then off again. And we suddenly realise these guys don’t know what they’re doing. And maybe that actually gives Europe an advantage.
I think another thing people are beginning to talk about is if there is a threat to the rule of law in America, might Europe be able to say, yeah, you know, we’re slow moving and, you know all our problems, but actually you’ll still get a fair shake in the European courts. The regulators are not necessarily gonna be in the pocket of a very powerful businessman who’s, you know, next door to the president. So there may be something there for Europeans as well, if . . . depending on how badly things go in America.
Marc Filippino
Gideon, what are you watching next? What about the transatlantic divorce are you curious about?
Gideon Rachman
Well, I mean, I think the big thing, immediate thing is Ukraine. Does Trump strike a deal with Putin? Can the Europeans get their seat at the table? And does this whole process exacerbate the rift between the two sides of the Atlantic? Or might actually we end up in a place where both the US and Europe can kind of live with it, in which case maybe in a couple of months’ time we’ll say, well, that was just sort of Trump theatrics. And it was all pretty brutal and distasteful. But in the end, Europe and America found common ground, and Trump didn’t basically kind of switch sides and join up with the Russians. The more dangerous outcome is that actually what we’re seeing is just a prelude to a real transatlantic rift over Ukraine. I’m a bit of a worst-case scenario person. I think this transatlantic rift is real and probably quite historic until such time as America definitively turns away from Trumpism. By which time , who knows what we’ll be?
Marc Filippino
Gideon, I want to thank you for a great conversation.
Gideon Rachman
My pleasure.
Marc Filippino
Gideon Rachman is the FT’s chief of foreign affairs commentator and host of the Rachman Review podcast. We’ll post a link to that in the show notes.
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This is Swamp Notes, the US politics show from the FT News Briefing. If you wanna sign up for the Swamp Notes newsletter, we’ve also got a link to that in the show notes. Our show is mixed by Sam Giovinco and produced by Katya Kumkova. We had help this week from Andrew Georgiades and Mischa Frankl-Duval. Special thanks as always to Pierre Nicholson. I’m your host, Marc Filippino. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Original music by Hannis Brown. Check back next week for more US political analysis from the Financial Times.