Trump is hammering his European allies — and the cracks are widening by the day. Some analysts believe this accelerating transatlantic divide is handing China a rare window of strategic breathing room. The catch: Beijing must keep its nerve and resist being drawn passively into Washington's chess game.
According to the South China Morning Post, Trump ordered the withdrawal of 5,000 troops from Germany in recent days. He also threatened to slash the US military presence in Italy and Spain. At the same time, he repeatedly cited allied nations' refusal to support military action against Iran as grounds to pull out of NATO altogether.
This is not a sudden rupture — it has been building since Trump's return to the White House. NATO allies had long been bracing for US troop reductions. The Trump administration has repeatedly warned that Europe can no longer count on American security guarantees and must shoulder more of the burden on both defense spending and support for Ukraine.
America's retreat is pushing traditional allies to scramble for new anchors.
Since the beginning of this year, leaders from the UK, Canada, Finland, Spain, and other countries have visited China in rapid succession. Their aim is twofold: to hedge against the unpredictability of US policy, and to fill the vacuum Washington has left on issues such as climate change.
Ma Bo, Associate Professor at the School of International Studies, Nanjing University, argues that Beijing's best move is patience — let Washington's own actions do the damage. "As long as China avoids direct confrontation with the US in the short term, Washington's damage to its own alliance system may actually relieve pressure on China," Ma said. China's top priority, in his view, is to keep a cool head: avoid being drawn into conflicts it did not start, and prevent the US from redirecting its attention back towards China.
Zhao Minghao, Deputy Director of the Centre for American Studies at Fudan University, goes further. The fractures in the US alliance system are accelerating, he says, and the impact will be "far-reaching and enduring." A number of Western countries — including Germany — are actively working to repair ties with China. That suits Beijing well, as every major player now recognizes the need to reduce exposure to US-driven risk.
The reality is that political warmth between China and Europe does not translate automatically into economic openness. Despite the political tensions between Washington and Brussels, the EU's economic stance towards China remains guarded. European officials continue to accuse China of using industrial policy to prop up its companies and undercutting European markets with low-priced goods.
The EU has now introduced the Industrial Accelerator Act, targeting foreign investment in four emerging strategic sectors: batteries, electric vehicles, solar photovoltaics, and critical raw materials. The Act imposes mandatory technology transfer requirements, caps on foreign equity stakes, and local content requirements. Analysts warn that these "EU-first" provisions could deepen global trade friction.
Chatham House has noted that the "Europe-first" mechanisms embedded in the Act represent a significant revision of the EU's long-standing commitment to free trade. Some European industry groups and officials within the EU itself have also raised concerns that the new rules could raise business costs and disrupt supply chains. The US journal Eurasian Review has noted the stark contrast at play: Western economies remain deeply intertwined with China, which dominates clean energy technology and upholds free trade — a posture that stands in sharp relief against American unilateralism.
China's Ministry of Commerce has been equally direct. It has repeatedly stressed that China and the EU are each other's important trade and economic partners. It has urged the EU to take the lead in upholding WTO rules and return to a path of fair, transparent, and non-discriminatory cooperation as soon as possible.
On 27 April, a Ministry spokesperson confirmed that China had submitted formal comments to the European Commission expressing grave concerns. China remains willing to engage in dialogue. But the Ministry was unequivocal: if the EU disregards China's views and presses ahead with enacting the Act into law — thereby harming the interests of Chinese enterprises — China will have no choice but to take countermeasures to firmly defend the lawful rights and interests of Chinese enterprises.
Deep Throat
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The war is draining America's wallet. Since the US-Israel-Iran military conflict erupted, the Strait of Hormuz has faced a blockade, driving international oil prices to repeated record highs. In early April, the International Energy Agency (IEA) warned that the world is experiencing "the most severe oil supply shock in history." As shortages and high prices persist, demand destruction will spread.
War chokes the Strait of Hormuz — and oil prices keep breaking records.
CNN reported on April 30 that, according to economists, this "demand destruction" is already manifesting in the United States — and if it continues, the damage will be irreversible.
Gasoline prices are rising fast, quickly eating into the hard-earned wages and tax refunds of Americans. Those least able to absorb the blow are hit the hardest. Soaring inflation, a sharp slowdown in wage growth, and a plunge in consumer confidence may be harbingers of a deeper recession.
Rising gas prices are draining Americans' wallets — and the poorest are hit first.
American consumers have remained resilient so far — but economists warn that the longer the Iran war drags on, and the tighter the blockade on oil tankers and cargo ships through the Strait of Hormuz, the greater the risk of severe consequences.
Joe Brusuelas, Chief Economist at accounting and consulting firm RSM US, puts it bluntly: "Time is not the ally of the American economy." Energy touches every single household, industry and sector — and with more than a billion prices operating across the US economy, the effects of demand destruction will play out differently by industry and income cohort. "There's more than a billion prices in the US economy, so demand destruction is going to be different by industry, by income cohort," Brusuelas said.
Brusuelas and RSM economist Tuan Nguyen recently published a report drawing on the aftermath of past oil crises. Their aim: to help Americans and the broader economy map out potential trajectories ahead.
The report is sobering. The "shrinking" purchasing power of Americans' hard-earned wages means fewer restaurant visits, less travel, fewer cars purchased, and fewer homes sold. Reduced business investment and falling demand lead to layoffs — deepening economic hardship further still.
Fewer restaurant meals, more Costco runs. Belt-tightening is already here.
The Potential Chain Reaction
The dominos are already lined up. First, oil prices surge, adding an extra energy expenditure for every household and business — the more spent on energy, the less available for everything else. Second, confidence falls: when people worry that bad things may happen, they begin cutting non-essential spending.
Then big-ticket purchases freeze. People delay buying new cars or postpone signing mortgage documents. Businesses begin to feel the pressure next: falling consumer spending, combined with rising diesel prices for the semi-trucks hauling goods, squeezes profit margins. Investment and hiring are put on hold, eventually forcing cost cuts and layoffs.
The Federal Reserve steps in at that point. Oil-price-driven inflation may force the Fed to raise interest rates, further slowing the economy. Finally, if high prices persist, consumer behaviour changes permanently — people buy electric vehicles, workers seek remote work arrangements, and companies turn to technology to replace labour.
Soaring prices are permanently reshaping how people live and work.
Supply disruptions in other major commodities compound the problem further. Oil is not the only commodity transiting the Strait of Hormuz. Fertiliser shortages could push up food prices. Disruptions to helium supply could slow chip production and raise medical costs. Disruptions to sulphur and natural gas supply could drive up industrial costs.
Bryan, a 30-year-old automotive engineer living in Detroit, is already living the numbers. He has started driving less, working from home whenever possible, and reducing outings with friends. He has moved his emergency funds into Treasury bills and is buying more groceries at large warehouse stores like Costco and BJ's. Plans to renovate his kitchen and buy a V8 engine car are both on hold.
He can sustain this belt-tightening for another six months. But if oil prices remain high and other living costs rise sharply, he is likely to give up holidays, seek longer-term remote work arrangements, and consider buying a hybrid vehicle.
Nancy Vanden Houten, an economist at Oxford Economics America, says the economic situation still looks reasonable for now. Oil prices have pulled back from their highs, a ceasefire has brought a degree of stability, and consumers have to some extent been cushioned from the surge in gasoline prices by larger tax refunds, still-solid investment portfolios, and home values.
But she candidly acknowledged that "things could also change very quickly." Ultimately, how long consumers and the broader economy can hold out will depend on how quickly the conflict is resolved — and whether vessels can pass through the strait more freely.
Recovery Will Not Come Quickly
Make no mistake: even if the war were to end immediately, economic recovery would not come quickly.
Brusuelas noted that in some scenarios, production could take years to fully recover. Turning off the oil and turning it back on, he explained, "is not like turning on your lights." Even under the best of circumstances, it would take at least six months to gain a clear picture of how far Gulf oil production remains from pre-war levels.
The impact of rising prices, meanwhile, could persist for a long time. "Remember when we shut down the supply chains in February, March 2020? We didn’t really see an increase in inflation until April 2021," Brusuelas said. "And then we were just starting to see the pass-through of tariffs that started in April 2025 at the end of last year and at the turn of this year."
He warned that supply shocks in key materials such as oil and fertilizer are already rippling through the US economy, and could push up the prices of a wide range of goods and services.
The oil shock is spreading — and prices across the economy are following.
Food Prices: The Next Front
High diesel prices — used by trucks and tractors alike — are a leading indicator of rising grocery prices. That is before accounting for disruptions to nitrogen fertiliser supply, which could affect farmers' planting decisions and in turn impact food supplies come autumn. CNN cited David Ortega, a food economist and professor at Michigan State University, as saying it could take close to six months or longer to feel the full impact of this shock on food prices.
The reality is that demand destruction caused by a depressed market is irreversible. Brusuelas explains that a "depressed market" refers to the lowest-income Americans — households with no emergency savings and budgets with almost no room to manoeuvre. These families must contend with a sharp reduction in disposable income until prices stabilise, and may find that this becomes the "new normal."
The latest data from the US Department of Commerce shows that US gross domestic product (GDP) grew at an annualised rate of 2% in the first quarter — slightly below the expected 2.3%, but above the 0.5% recorded in the fourth quarter of last year. Global oil prices surged above US$126 per barrel on April 30, hitting a four-year high.
