Donald Trump’s second presidency may play a major role in the reshaping of international relationships. The partnership between the European Union and the United States of America has been challenged by a trade war, disagreement over the vision of the future of the Russian-Ukrainian military conflict, and other critical questions. Differences in the approach to cryptocurrencies and America’s striving to dominate the sector also draw a line between the U.S. and the EU.
Trade war and unconditional tariffs still dominate the headlines and narratives two weeks after Apr. 2, 2025, known as Liberation Day. On that day, Trump announced the adoption of so-called reciprocal tariffs and signed a respective executive order, starting a period marked by market chaos, uncertainty, and speculations over the reasoning behind tariffs and possible implications. The trade war further increased the alienation between the U.S. and the EU.
The credit rating of the U.S. is facing a downgrade in Europe
One of the signals of potential cooling in the U.S. and EU partnership is the downgrade warning sent to the U.S. by Scope, a European credit rating agency, on Apr. 15, 2025. According to Scope, America’s credit rating will be downgraded if the U.S. doesn’t stop its trade war. Credit default swap markets expect several rating downgrades for the U.S.
The current rating of the U.S., according to Scope, is AA with a negative outlook. S&P and Fitch rate the U.S. higher, at AA+, while Moody’s gives America the highest rating, AAA.
The European Central Bank uses the estimations by Scope to evaluate the creditworthiness of the countries. According to Scope’s research, the trade war severely damages the U.S. and the countries that trade with America the most.
Scope outlines three scenarios:
- Tariff-light. In this scenario, tariffs turn out to be just a cause for negotiation. It will result in a new balance with short-term inflation volatility, confidence shock, recession in the U.S., etc.
- Trade war. This scenario assumes that tariffs are high and constant. It triggers counter-tariffs, a full-year recession takes place, supply chains re-arrange, the potential for growth still exists, though, depending on the trading connections, etc.
- Economic and financial crisis. Tariffs are constant and high. Escalation of the China vs. the U.S. conflict. Europe is taking countermeasures against the U.S. America is going through years of recession, while the world enters a serious financial crisis.
Unfortunately, the erratic nature of Trump’s policies makes it hard to make predictions about what is going to happen. For instance, Scope notes that it is not clear if the named tariff rates are the floor or the ceiling. However, it is clear that countries that have surplus trade with the U.S. or strong linkages with U.S. banks are at greater risk. European countries such as Turkey, Georgia, Italy, and Ireland are among those who may be harmed by the tariffs the most. According to Scope, the country facing the biggest risks is the U.S. itself.
Such measures as Draconian unconditional tariffs, taxes on foreign investment, or the deployment of government capital controls from the American side may shut the USD from being a leading currency for international transactions and lose its role as a global store of value. However, it is not clear what currency may serve as an alternative. The head of sovereign ratings in Scope, Alvise Lennkh-Yunus, assumes that the EU may get closer to China as a result of the decline in U.S. creditworthiness.
The trade war has already affected the U.S. dollar. In April alone, the position of USD has really become shaky. The U.S. dollar saw the worst year-to-day decline against other major currencies in decades. These factors undermine trust in the USD around the world.
See the main thought of the Scope’s report:
“If implemented, the tariffs would represent the biggest peacetime trade shock to the global economy in more than 100 years. If sustained, this policy shift will have important credit implications for both the US (AA/Negative) and for sovereigns globally. Conversely, even their full reversal, though unlikely, would not fully restore the confidence of previous alliances and supply chains, indicating a degree of durable economic loss.”
The potential implications of a downgrade will worsen the conditions for the further economic development of the U.S. It will get harder to pay off the national debt as its cost will increase, following the rising interest rate for loans. Mortgages and other types of borrowing will soar for Americans. However, it’s worth saying that the overall credit rating of the U.S. is still much higher than the rating of most other countries.
USD-pegged stablecoins vs. Euro
Another important narrative voiced on the same date, when the Scope’s report saw the light of day, is the threat of the USD-pegged stablecoins to the Euro. The concern was brought by Italian economy minister Giancarlo Giorgetti. He urged the EU officials to speed up the work on the digital Euro and improve the Euro’s status as an international reference currency.
According to Giorgetti, the threat of the U.S. stablecoins domination in Europe is a larger problem than the discussions about Trump’s tariff policies. The main concern is that Europeans lean toward the dollar-denominated stablecoins, as they are a handy cross-border payment method. At the same time, Europe has nothing to offer as a convenient alternative.
While Europe is working on the CBDC solution, a central bank-backed digital Euro, the U.S. stopped the work on the digital dollar, allowing the private sector to step in instead. The move is motivated by striving to maintain the financial privacy of U.S. citizens. CBDC solutions are widely criticized as being an instrument of surveillance. In this regard, it is unclear if the digital Euro will have a preference for Europeans.
The MiCA act regulating the stablecoins in the EU has already given a hard time to the biggest stablecoin issuer, Tether, as the American company doesn’t meet the new requirements of regulators.
