The potential victory of Trump in the upcoming US presidential elections is causing concern in Europe, especially after the recent assassination attempt on the tycoon.
Analysts, particularly those at Goldman Sachs, have highlighted the possible repercussions on the European economy if Trump were to secure another term in the White House.
One of the main concerns is related to Trump’s trade policies and the uncertainty surrounding them.
During his previous presidency, tensions between the US and the European Union escalated, with the US imposing tariffs on European steel and aluminum, prompting the EU to retaliate with tariffs on US goods.
The threat of a generalized 10% tariff on all US imports, including those from Europe, could significantly increase policy uncertainty as experienced between 2018-2019.
This uncertainty could negatively impact industrial production in the euro area and lead to a decrease in GDP, particularly affecting countries like Germany that heavily rely on industrial output.
Another contentious issue is European defense policy in relation to a Trump presidency.
If re-elected, Trump might reduce or cut US aid to Ukraine and hinted at not supporting NATO countries that do not meet the 2% defense spending requirement.
Meeting this requirement and compensating for reduced US support to Ukraine could have economic implications for Europe, possibly requiring additional defense spending equivalent to 0.5% of GDP annually.
The growth resulting from extra military expenditure is expected to be moderate, while uncertainties and geopolitical risks may arise from Trump’s defense stance towards Europe and NATO.
Trump’s domestic policies, such as tax cuts and deregulation, could also impact the euro area economy.
Changes in US macroeconomic policy during Trump’s first term had substantial repercussions in Europe due to stronger US demand and tighter financial conditions in the US.
Potential US tax cuts might boost economic activity in Europe, but when combined with other market changes, the overall impact could be limited.
The net financial fallout might be mitigated by higher long-term interest rates offset by a considerably weaker euro.
The economic, political, and financial weight of the US elections, especially in the event of Trump’s victory, is becoming increasingly relevant for Europe.
Markets and analysts are closely monitoring and assessing the potential consequences.
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