What the End of the Post-WW2 Order Means for Manufacturing

After the atrocities and devastation of World War Two (WW2) a new political, economic and military order was built that has since shaped the trajectory of manufacturing and trade across Europe and the US.

This order began with the creation of the European Economic Community (EEC) in the 1950's, which included the Coal and Steel Community, the Atomic Energy Community and the Economic Community, which all had their own law-making institutions and flag.

In the late sixties these three communities would merge into a single institutional structure, known today as the EU.

It was around this time that the North Atlantic Treaty Organisation (NATO) was also created by the US, Canada and Western European nations out of the desire to maintain collective security against the Soviet Union.

These political moves ended America's isolationist foreign policy - which had been challenged by its entry into WW2 - as the nation became the head or centre of what Winton Churchill in 1946 called the 'European Family' or the 'United States of Europe', designed to ensure peace and prosperity across both continents.

Today, European nations rely heavily on the US for defence and are deeply intertwined when it comes to trade.

The transatlantic trade relationship is one of the most important commercial relationships in the world, with the EU - US trade in goods and services reaching impressive €1.6 trillion (US$1.677tr) in 2023. 

Ergo every single day, €4.4 billion (US$4.613bn) worth of goods and services cross the Atlantic between the EU and the US.

Its also critical to note that the goods and services trade between the EU and US is balanced, with the difference between EU exports to the US and US exports to the EU standing at €48 billion (US$50.34bn) in 2023, the equivalent of just 3% of the total trade between the EU and the US.

So manufacturing in Europe is very reliant on the US, but the same is true in the inverse.

The numbers above are set to change, due to a dramatic shift in US foreign and trade policy under the Trump administration.

We've discussed the potential impact of US President Donald Trump's 25% tariffs on Mexico and Canada and 10% tariffs on China, which have officially gone ahead.

These tariffs have already motivated many European nations to rethink their existing trade strategies with the US.

But now, as the Trump administration takes a different turn on US foreign policy on Ukraine, this goes beyond reconsideration.

The Trump Administration's shift towards Ukraine & the EU

After a disastrous Oval Office meeting with Ukrainian President Volodymyr Zelenskyy - screened around the world - President Trump has paused all US aid to Ukraine.

This comes after Ukraine's President chose not to sign a framework agreement proposed by the Trump Administration that aims to create a joint US and Ukraine managed "Reconstruction Investment Fund". 

Within this deal the Ukrainian government would contribute 50% of future monetisation of any state - owned natural resource assets, including rare earth minerals, to the fund.

Rare earth minerals, contrary to their name, are not rare.

They exist across the world in large quantities including in North America's extensive mountain ranges. 

But they are extremely expensive in terms of equipment and labour to mine, with toxic, unsustainable environmental impacts. 

Until now, it has been a heavily regulated practice in the US, with President Trump's move to roll back environmental protections likely to contribute to a growth in US rare earth mineral mining. 

But this growth will be slow, and right now supply of these minerals is largely bottle-necked through China which accounts for 97% of global production. 

Having access to these rare earth minerals- which are vital to manufacturing sectors like healthcare, automotive and aviation - without production costs is to the strategic benefit of the US. 

In return for Ukraine becoming part of this fund, the US per the framework would provide security guarantees - but specifics on this and the amounts, timeline or details of the fund's management were not provided in the agreement. 

This comes after President Trump reportedly called Zelensky a 'dictator' and has taken a series of foreign policy positions favourable to Russia.

These include stating that Ukraine would not in the event of a peace deal recover all its territory or join NATO and meeting with Putin, breaking ranks with Western leaders who have boycotted doing so for the past three years. 

In February Trump falsely accused Ukraine of starting the war with Russia and said Putin should be allowed to return to the G7, which Russia was expelled from after it first annexed Crimea in 2014. 

The US also voted with Russia, North Korea and Iran against a UN General Assembly resolution drafted by European and Ukrainian diplomats on the war in Ukraine because the resolution named Russia as the aggressor.

These political moves have fundamentally unsettled the Post-WW2 order, going against the intended purpose of the EU and NATO - to build a unified front to defend against aggression in Europe.

This has been unsettled even further by the fact that Tesla billionaire Elon Musk, appointed by Trump to head up a new US state department called D.O.G.E ( Department of Government Efficiency), has been openly calling for the US to leave NATO.

Yesterday an emergency summit was held between European leaders to reassess in light of all this, with the pivots they make profoundly reshaping global manufacturing.

How this shift will reshape global manufacturing

As we noted in our article exploring the potential impact of the Trump tariffs, something critical has been damaged by the current US administration: trust.

Due to the above, many believe the US is no longer a predictable or reliable actor on the world stage and its allyship to the EU cannot be counted upon.

Counting on this allyship has determined so much of Europe's current military and trade landscape. A prominent example of this is the fact that few European nations have nuclear weapons of their own.

In fact many - including former soviet states Ukraine, Belarus and Kazakhstan - gave theirs up specifically in the 90s for US military protection.

If the transatlantic alliance continues to fracture, we could see a new world order defined by a more multipolar manufacturing landscape.

Within this, no single power like the US, EU, China or India would dominate global supply chains.

This landscape would be defined by regionalised production hubs, increased economic nationalism and a more complex, uncertain trading environment.

Alternatively, we could see the EU break in its approach to China - which it has referred to as a "systemic rival" since March 2019. 

China is already the world's biggest manufacturing superpower and we could see the creation of closer trade and manufacturing relationships between the country and the EU. 

Below we've delved deeper into the restructuring that could be ahead. 

Seven possible manufacturing outcomes

1. Increased supply chain fragmentation & reduction of EU-US trade

• The potential US withdrawal from the EU as a strategic partner and the introduction of protectionist tariffs will force European manufacturers to reduce reliance on US trade.
• Europe could seek alternative trade alliances with China, India and other emerging markets, leading to a diversification of supply chains.
• US-based manufacturers reliant on European components (in industries like automotive, aerospace, pharmaceuticals) will have to source locally or from other regions, increasing costs and delays.

2. Acceleration of European industrial self-sufficiency

• European nations will likely push for more domestic manufacturing and investment in critical industries such as semiconductors, defence and rare earth minerals.
• EU initiatives similar to the European Chips Act and Green Deal Industrial Plan could receive a funding boost to counterbalance reduced US cooperation.
• Expect to see a rise in European reshoring efforts, notably in sectors like automotive, aerospace and pharmaceuticals.

3. Shift in energy & defence supply chains

• The reduction of US support for Ukraine may push Europe to increase military-industrial production.
• The EU could accelerate its transition away from US energy supplies, investing more in nuclear, renewables and energy partnerships with the Middle East and Africa.
• The UK, no longer bound by EU rules, may act as a critical bridge between the US and Europe, reshaping UK manufacturing as a strategic hub.

4. Growth of China & India's global manufacturing influence

• With the US and EU drifting apart, China and India could fill the gap in trade and manufacturing collaborations.
• More European firms may seek to invest in India’s growing industrial base or deepen relationships with China despite ongoing geopolitical tensions.
• This could result in Europe becoming more economically aligned with Asia.

5. High-tech sectors will face uncertainty & slowdown

• US tech firms (Apple, Intel, Boeing) rely heavily on European suppliers and vice versa. A fractured transatlantic relationship could lead to a more fragmented global tech industry.
• Emerging industries like AI, quantum computing and biotech may see a slowdown in collaboration between the US and Europe, giving China an advantage.

6. Manufacturing costs may rise globally

• A breakdown in trade agreements could result in higher tariffs, logistical costs and supply chain inefficiencies, driving up manufacturing costs globally.
• European firms may shift production to lower-cost regions (Southeast Asia, Latin America), but this transition will take time.
• Consumers may see higher prices for cars, electronics, pharmaceuticals and other goods due to increased trade barriers.

7. Unpredictable corporate & investor reactions

• Manufacturers across the US and EU will need to quickly reassess their global supply chains, potentially shifting investments to markets with more predictable trade policies.
• Expect financial market volatility, with major shifts in stock prices for manufacturing-heavy industries.

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