As the world tries to make sense of US President Donald Trump’s latest tariff announcements, dubbed “Liberation Day” by his team, one thing becomes clear: volatility has become a feature, not a bug, of U.S. economic and foreign policy. Within days, tariffs are announced, delayed, and then justified by conflicting narratives from his own advisors. Adding to the unpredictability, the US is looking into closing several embassies and consulates globally, including in Malta, as part of the US State Department budget cuts. However, beyond the noise of the theatre of tariffs and diplomatic retrenchment, close observers can see a deeper shift. Faced with erratic U.S. behaviour, Europe is beginning to pivot away from dependence on the U.S. in favour of stronger ties with Eastern powers.
On April 2, President Trump announced sweeping import tariffs on goods from nearly every country. A week later, they were paused above a baseline of 10 percent, except for China. While tariffs are sometimes used to protect domestic industries, these broad measures risk inflation, with the burden falling disproportionately on the most vulnerable in the U.S. Analysts warn they could undermine confidence in U.S. bonds, traditionally viewed as risk-free. Although depreciating the dollar may serve Trump’s aim of reducing the trade deficit and attracting manufacturing back to the U.S., weakening its international status injects uncertainty into the global monetary system and ultimately harms U.S. economic interests.
Some analysts warn that a sudden decline in the dollar’s international standing could significantly increase U.S. borrowing costs and simultaneously facilitate China’s efforts to promote its currency on the global stage. This development must be seen as part of a broader economic trajectory including rapid policy enactments, cuts to essential public programs, and tax benefits for the wealthiest, all without concrete plans to address rising costs of living or long-term economic consequences.
The perceived erraticism of the Trump administration has begun to upend the global economic order. Conflicting signals from Trump’s economic team and a lack of internal consensus on tariffs further erode trust in the U.S. as a stable, rules-based partner. BlackRock CEO Larry Fink, among other financial leaders, has described the tariff strategy as destabilizing.
In response, Europe is taking steps to recalibrate its strategy and reduce its overreliance on U.S. technology, defence, and financial infrastructure. This includes renewed efforts to build domestic capacity, such as France’s AI initiative, and to follow through on proposals from the Draghi report. More broadly, Europe is deepening engagement with partners in the East, including China, India and ASEAN.
China remains a dominant economic actor within the EU, accounting for 59% of imports in key sectors like machinery, vehicles and other manufactured goods. In 2024, bilateral trade rose by 1.6% to approximately €762 billion. The Chinese government continues to court European firms as part of a strategy to offset U.S. hostility and encourage deeper integration with Chinese markets and supply chains. Spain’s Prime Minister, Pedro Sánchez, recently visited China, leading to increased Chinese investments in Spain’s green technology and electric vehicle industries. China’s ambassador to Spain openly advocates for enhanced EU-China economic relations as a counterbalance to U.S. economic unpredictability.
Meanwhile, the EU and India have committed to finalising a comprehensive free trade agreement by the end of 2025. This deal, described by European Commission President Ursula von der Leyen as “the largest of its kind” will span cooperation in trade, technology, connectivity and defence. The EU is already ASEAN’s third-largest trading partner and second-largest source of foreign direct investment, with Germany’s new government expected to deepen ties and von der Leyen planning a visit to Vietnam in May.
While diversification efforts are underway, Europe still depends heavily on China for essential goods such as pharmaceuticals and rare earth elements, which are critical for the green transition. This growing economic alignment, while strategic, may also pose challenges to European values and security interests.
The diplomatic retrenchment of the potential closures of U.S. embassies, including in Malta, adds to the economic tension. Even though the U.S. embassy in Malta has recently denied that it will close, its closure would mark the first time Malta has been without a U.S. diplomatic presence since its independence. The American Foreign Service Association has called the proposed cuts “reckless and dangerous”. If closed, the U.S. embassy, which is notably currently the largest foreign embassy in Malta, would leave a significant diplomatic vacuum. Meanwhile, China has been seeking to expand its own diplomatic footprint in Malta, receiving over 19,000 square meters of land in Pembroke in 2015 for a new embassy. The symbolism is notable: as the U.S. retracts its diplomatic presence, China moves in.
Looking at the bigger picture, it is not about a specific tariff hitting Europe or an embassy closing but about what it signals. It seems that unless the U.S. offers consistency and strategic clarity, Europe may continue to quietly (or not so quietly) reorient itself. And this will surely be taking an inward-looking direction and very likely a drift toward the East.
