Overview
The contentious meeting between US President Trump and Ukrainian President Zelenskiy constituted a public display of the challenges ahead in ending the Ukraine War. How top stakeholders proceed risks a reordering of the geostrategic environment, creating uncertainty for businesses with both upside and downside risks. Key areas of risk exposure include shifting political and trade relations, and, at the extreme, fracturing of the transatlantic relationship.
Trump-Zelenskiy Meeting: Misaligned Confidence-Building Proposals
The Trump-Zelenskiy White House meeting on February 28 failed spectacularly for several reasons. Substantively, there was a fundamental disagreement over confidence-building measures that exacerbated mutual distrust between the two leaders. President Zelenskiy pressed for security guarantees as part of a ceasefire agreement, not trusting Russia to adhere to political agreements based on a lack of implementation of the Minsk agreements reached as part of the ceasefire after Russia’s invasion of the Crimea and the Donbas. President Trump opposes US security guarantees because his goal is to get the US out of this open-ended conflict and not further bind the US to a European conflict that risks dragging America into a war with Russia. President Trump’s alternative approach, an investment initiative in critical minerals giving the US a long-term economic interest in Ukraine, did not provide the Ukrainian leader with enough assurances that the US would deter further Russian military aggression.
The Terms and Stakes of an End of Conflict
With negotiations yet to begin, the parties have only articulated their maximalist terms for an outcome. There is no agreement yet on whether the framework will be “land for peace” or “peace for peace.” Ukraine wants to secure its sovereignty and democracy and regain control over its occupied territory (a peace for peace framework). Russia seeks recognition of its global standing as a great power and to regain control over territory lost in the breakup of the Soviet Union (land for peace). Europe does not want to reopen a chapter in history where borders are set by military might, putting the current map of Europe at risk (a bridging framework). The Trump Administration wants the war over, details negotiable, as long as it happens expeditiously and Europe assumes responsibility for its future security. The disagreement about the framework is a significant driver for uncertainty and risks for businesses.
Risks of Shifting Political and Trade Relations
European leaders have stepped forward to reiterate their support for Ukraine after the White House blow up. Leaders gathered in London on March 2 to discuss presenting an alternative ceasefire proposal and blueprint for peace, created in cooperation with Ukrainian leaders. They also pledged to spend more on their own defense and to support Ukraine, including through military aid, and the UK and France, in the vanguard, plan to send peacekeeping troops as a security guarantee in the event of a peace deal. Despite demonstrating its ability to make its own security plans, Europe does not want to see a breach with the US and hopes to yet win a US security backstop, in the belief that only then would the Kremlin take their commitments seriously.
If substantive negotiations start and acceptable compromises are reached through agreement, the discourse will transition to how the stakeholders will work together to restore the security equilibrium in Europe. Russia’s role in Europe as a partner will be back on the table, as well as its political and economic reintegration. The negotiations are unlikely to be linear or fast. The upside for businesses is that they will have time and opportunity to explore renewing business ties with Russian companies as sanctions are unwound, new trade policies set, and litigation resolved. This is an optimistic scenario.
A riskier scenario is one in which coercive measures are deployed with the goal of forcing (not building) compromise. The brinksmanship seen during the Trump-Zelenskiy meeting would be the rule, not the exception. Unfortunately, there are indications that this scenario is in play. The Trump Administration has multiple tools to pressure the stakeholders. President Trump announced a “pause” of military aid to Ukraine this week. Washington could further cut off American military supplies to Ukraine, even if purchased by third countries, by denying export permission. Europeans have other supplier options, but at higher costs. US defense suppliers could see sharp cuts in their order books while partners and the European defense sector see growth.
President Trump may not be open to alternative peace proposals by the Europeans and is already saying his patience is running out. The White House could move forward with threatened tariffs on European countries as leverage to force them to align on Ukraine policy. As the new 25% tariffs on Mexico and Canada demonstrate, President Trump’s tariff threats should be taken seriously. This would inject more tensions into transatlantic bilateral relationships. French Prime Minister Bayrou already said that there have been two victims from the White House confrontation: Ukrainian security and “Europe’s eight-decade alliance with the US.”
US trade sanctions on the EU risk triggering retaliatory trade measures and, in an extreme scenario, backfire, driving Europe further away and into in tactical alignment with Washington’s critics – perhaps China, but also other countries on the receiving end of Trump tariffs. Businesses risk being caught in a trade war that will harm business models, disrupt supply chains and negatively impact profitability. The US and EU economies are deeply linked, with bilateral trade in 2024 standing at around $975.9 billion. The US could unilaterally start lifting sanctions on Russia in an effort to disrupt European leverage in negotiations to end the Ukraine war, creating even more complex compliance environments for businesses.
Meanwhile, Russia benefits from disunity among Ukraine’s backers and is likely to exploit the tactical opportunity of disarray and demoralization to escalate fighting, seeking to break Kyiv’s lines and the will of its backers to continue the fight. This escalation could be very dangerous if the Kremlin decides that the West no longer maintains a credible nuclear deterrent.
A fracture of the transatlantic relationship risks reordering the geostrategic environment. Weaker partnerships will restrict US capacity in tackling global challenges, like strategic competition with China or restoring stability in the Middle East. Multilateral institutions established upon a shared transatlantic vision of democracy, open societies and free trade, many already beleaguered, would become less effective in preserving peace and security. President Trump is seeking to end one war, but he risks creating conditions that could lead to its expansion.
