The percentages of Donald Trump being re-elected as president are rising, with prediction markets at present giving him a 60% likelihood of successful in November.
Goldman Sachs analysts stated {that a} potential Trump 2.0 presidency may have far-reaching penalties for Europe, given the key financial and geopolitical modifications that occurred throughout Trump’s first time period.
Some of the fast impacts of Trump’s re-election would be the reintroduction of aggressive commerce insurance policies. Trump has pledged to impose a ten% tariff on all U.S. imports, together with these from Europe. This might result in elevated commerce coverage uncertainty, just like what was skilled in the course of the commerce battle with China in 2018-2019.
“We estimate a statistical mannequin utilizing month-to-month knowledge since 1987 and present that larger commerce coverage uncertainty tends to have a big and chronic destructive impression on euro space exercise, whereas the impression of will increase in actual tariffs is far weaker and extra Troublesome to establish.
Particularly, the earlier commerce battle resulted in a decline in euro space industrial manufacturing of roughly 2%, leading to a 1% decline in GDP. If Trump imposes these new tariffs, the EU is anticipated to retaliate, exacerbating commerce tensions. Analysts additionally identified that European economies, particularly Germany, will probably be significantly weak resulting from their excessive reliance on commerce and industrial exercise. Increased tariffs might barely enhance inflation, however the primary impression will probably be a slowdown in financial development.
One other essential space of ​​affect is protection and safety.
Trump has been pushing NATO members to extend protection spending to 2% of GDP. European international locations at present spend about 1.75% of GDP on protection, so assembly Trump’s calls for would require an extra 0.25% of GDP per yr.
As well as, Trump’s stance on lowering U.S. navy assist for Ukraine might drive European international locations to extend their spending by one other 0.25% of GDP.
Whereas it may present a modest increase to financial development, the excessive import share of European navy spending implies that a lot of this development will profit the U.S. economic system. Moreover, larger deficits may put upward strain on long-term rates of interest in Europe, probably offsetting any positive factors from development.
Trump’s home insurance policies, significantly tax cuts and deregulation, might also have spillover results on Europe. Elevated U.S. demand ensuing from these insurance policies may barely increase exercise within the euro space. Nonetheless, the modifications in monetary markets that adopted Trump’s election in 2016 – rising long-term yields, rising inventory costs and a stronger greenback – should not anticipated to be as influential this time round.
“Nonetheless, web monetary spillovers are more likely to be muted as we anticipate the impression of rising long-term charges to be offset by important euro weak point, in keeping with tendencies following the November 2016 election.”
“Total, our estimates recommend that Trump’s coverage agenda will scale back euro space GDP by about 1% and enhance inflation by 0.1 share level,” they added.
“Given the bigger (and longer-lasting) impression on financial exercise than on inflation, we anticipate Trump’s re-election to strengthen the case for continued ECB fee cuts in 2025, with a easy Taylor rule suggesting an extra 30-40% of fee cuts foundation factors.
