US Election - What a Trump win could mean for Europe

Summary

The briefing below analyses the significant economic and geopolitical risks a second Trump presidency poses to Europe.? While the analysis acknowledges some potential upsides, such as increased investment in renewable energy due to reduced US subsidies, the overall outlook emphasises the negative consequences of increased protectionism.? The discussion underscores the need for European businesses and policymakers to prepare for the potential fallout of a Trump victory, particularly in managing trade relations and navigating the evolving geopolitical landscape surrounding the war in Ukraine.

What are the economic and geopolitical implications of a second Trump term for Europe?

• A second Trump term would likely lead to a more protectionist global trade environment, including a potential increase in US import tariffs.??This could lead to EU counter-tariffs and increased trade policy uncertainty, negatively impacting European economic growth. ?The most significant tariff increases would likely be on steel, aluminium, and cars, while consumer goods might see some exemptions.?
• The economic impact on Europe would vary by country.??Germany is particularly vulnerable with its large trade surplus with the US, open economy, and substantial industrial sector.??Other significantly impacted countries include Ireland, due to its considerable services exports to the US, and Italy, with its sizeable automotive sector. ?The UK, central Europe, and southeastern Europe are considered less vulnerable.?
• While the EU's retaliatory tariffs could increase inflation, the slower economic growth resulting from the trade war would likely offset this.??The EU's focus on targeting specific items when retaliating, similar to its approach in 2018, would also help minimise inflationary pressures.?
• A second Trump term could negatively impact the outlook for the war in Ukraine.??With Europe heavily reliant on the US for regional security, a decrease in US support for Ukraine under a second Trump administration would be difficult for the EU to compensate, potentially leading to a ceasefire favouring Russia.

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It's important to note that these are just potential implications, and the actual outcome could vary depending on various factors.??The analysis highlights several "what to watch" points that could influence the ultimate impact of a second Trump term on Europe.

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What are the leading trade policy differences between a Trump win and a Harris win?

• A Trump win would likely result in a more protectionist trade policy than a Harris win.??This prediction stems from Trump's proposed 10% blanket import tariffs, contrasting the expectation of policy continuity with Biden in a Harris administration.?
• Under a Trump administration, the weighted average US import tariff is projected to rise to 5% and 10% from the fourth quarter of 2025, compared to the current 2%.??This contrasts with the implied lower tariff environment under a Harris win. ?Tariffs on Chinese goods are anticipated to increase from roughly 20% to 30%, with steel, aluminium, and cars likely experiencing the most substantial increases. ?Consumer goods might receive some exemptions to mitigate the impact on US consumers.
• The analysis suggests that a Trump administration would likely face pushback from the US private sector, a divided Congress, and potential legal challenges in pursuing its trade agenda.??However, the analysis anticipates that Trump would leverage his broad authority over tariffs and trade restrictions to achieve his objectives.??
• The EU would likely respond to increased US tariffs under a Trump administration by initially seeking exemptions through increased purchases of certain US goods.??However, the EU's significant trade surplus with the US, a point of contention for Trump, makes this strategy unlikely to succeed. ?The analysis anticipates that the EU would then implement targeted retaliatory tariffs, mirroring its approach in 2018, focusing on specific goods to minimise broader inflationary pressure. ?The analysis does not directly address the likelihood or nature of any EU trade response in the context of a Harris win.

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What impact will a Trump win have on the conflict in Ukraine?

• ?A Trump win would likely negatively impact the outlook for the war in Ukraine.? The analysis predicts that a second Trump term would lead to decreased US support for Ukraine, a situation that the EU would be challenged to address due to its reliance on the US for regional security.? This diminished support could result in a ceasefire and peace talks in 2025, potentially brokered by Trump.
• However, the analysis suggests that these peace negotiations would likely break down, leading to a resumption of the war.? While the EU would attempt to fill the void left by reduced US aid, the source considers a "poor deal" for Ukraine, solidifying territorial losses, as the most probable outcome.? The analysis acknowledges uncertainty surrounding these projections, noting an upside risk where the ceasefire might endure even if peace talks falter, resulting in a frozen conflict.? This scenario would offer a chance for recovery and adaptation but wouldn't deliver a meaningful resolution to the conflict.

This is the first of two US Election briefings; the second will focus on what a Trump win could mean for the Middle East.