The historically strong alliance between the European Union and the United States is showing signs of major strain, as President Donald Trump’s second term sparks fresh geopolitical and economic tensions. Central to the growing rift are aggressive trade policies, divergent views on the Russia-Ukraine conflict, and an intensifying debate over digital currency dominance.
Trump’s Trade War Fuels Alienation
Two weeks after Trump proclaimed “Liberation Day” on April 2, 2025—marked by the signing of an executive order imposing reciprocal tariffs—markets continue to reel from the fallout. The move triggered a new wave of uncertainty, prompting fears of a full-scale trade war between the U.S. and its closest allies, including the EU.
While the White House maintains that the tariffs are necessary to protect American industry, European analysts and policymakers see them as draconian and self-defeating. According to Scope Ratings, a top European credit rating agency, these measures could lead to a downgrade of the U.S. credit rating unless quickly reversed.
Scope currently rates the U.S. at AA with a negative outlook, while agencies like S&P and Fitch maintain an AA+ rating and Moody’s holds the U.S. at AAA. However, Scope’s recent statement warned that if the tariffs persist, the global economy may face the largest peacetime trade shock in over a century.
“If sustained, this policy shift will have important credit implications for both the U.S. and sovereigns globally,” Scope noted. Even a full reversal of the tariffs, it added, “would not fully restore the confidence of previous alliances and supply chains.”
EU Eyes Closer Ties with China as U.S. Credit Outlook Dims
The report from Scope also suggested that the EU could tilt more toward China in response to the diminishing reliability of U.S. economic leadership. This sentiment is echoed across European capitals, where policymakers are alarmed not only by tariffs but by America’s unpredictability under Trump’s renewed administration.
The economic fallout is already visible: the U.S. dollar is experiencing its worst year-to-date performance against major currencies in decades. As borrowing costs rise and global confidence in the USD erodes, Europe is actively exploring ways to insulate itself from further U.S. volatility.
Stablecoin Supremacy Sparks Eurozone Anxiety
Adding to the growing divide is the rising concern over USD-pegged stablecoins dominating Europe’s financial ecosystem. On April 15, Italian economy minister Giancarlo Giorgetti warned that stablecoins like USDT and USDC could pose a bigger threat to the euro than Trump’s tariff policies.
Giorgetti urged the EU to accelerate development of the digital Euro, stressing that American private-sector stablecoins are becoming the default for cross-border transactions—putting the euro at a competitive disadvantage.
Unlike the U.S., which has paused work on a digital dollar to protect financial privacy, the European Central Bank is actively developing a central bank digital currency (CBDC). However, skepticism remains high about whether a surveillance-resistant digital euro will appeal to consumers, especially when U.S.-backed alternatives already dominate the crypto-financial landscape.
Regulatory Crackdown on Tether and MiCA’s Role
Europe’s response to the stablecoin influx has already taken regulatory shape through MiCA (Markets in Crypto-Assets Regulation). The framework places stringent requirements on issuers like Tether, whose dollar-pegged coins no longer comply with EU rules. This regulatory pressure reflects growing intent by EU leaders to protect the sovereignty of the Euro in the digital age.
But even as the EU tightens the reins on stablecoins, the absence of a compelling alternative like the digital euro may slow its ability to counteract American dominance in decentralized finance and cross-border payments.
Final Thoughts
As President Trump doubles down on protectionist policies and the U.S. asserts its dominance in crypto markets through private sector innovations, Europe is reassessing its strategic alignment. The fallout from the trade war, warnings from European credit agencies, and tensions over digital currency are collectively reshaping the transatlantic partnership.
