As the 2024 US presidential election approaches, one critical topic that often goes unexamined is its potential impact on regions outside the United States, particularly Europe.
With Vice President Kamala Harris and former President Donald Trump neck and neck in the race, the stakes for Europe’s economy are high.
The election outcome could usher in drastically different scenarios, potentially shaking up trade, defense spending, and economic reforms across the continent.
Could a trade war erupt?
Trade is a primary concern for European businesses and policymakers as they monitor the unfolding US election.
A second Trump term would likely bring more protectionist policies, including 10-20% tariffs on all imports, which would directly affect Europe.
During his first term, Trump imposed tariffs on various European goods, including Spanish olives, resulting in a 70% drop in exports to the US.
The risk of further trade wars under a potential Trump 2.0 administration is significant, and European companies are bracing for the fallout.
Conversely, a Harris presidency would likely maintain the status quo established by President Joe Biden, which has not been particularly favorable for free trade either.
While Harris is not expected to roll back existing tariffs imposed by Trump, she would likely avoid the escalation many fear could arise from a Trump victory.
Instead, she would probably continue Biden’s focus on American jobs, driven by policies like the Inflation Reduction Act (IRA), which has already sparked concerns in Europe regarding its impact on EU competitiveness.
For Europe, where half of the region’s economic output is tied to trade, this is a significant issue.
The EU is highly dependent on exports, especially in sectors like automotive and machinery, which would be the first to feel the impact of new US tariffs.
Goldman Sachs estimates that Trump’s proposed tariffs could reduce eurozone GDP growth by one percentage point, a major blow for an already struggling economy.
Can Europe afford a Trump presidency?
NATO and defense spending are also central issues in the US election, but Europe stands to lose the most.
Trump has repeatedly criticized European NATO members for failing to meet the 2% GDP target for military spending and has hinted at reducing US military support if they do not step up.
In contrast, Harris is expected to maintain Biden’s approach, which has encouraged Europe to increase defense budgets but at a more gradual pace.
A second Trump term could force European countries to accelerate defense spending much faster than planned, particularly if he withdraws US support for Ukraine.
European governments, already grappling with high debt levels from post-pandemic recovery efforts, would face difficult choices regarding how to fund increased military commitments.
UBS analysts warn that while a Harris presidency may afford Europe more time to adjust, a Trump presidency would dramatically accelerate the timeline for increased defense spending.
The potential for Trump to reduce US involvement in NATO and Ukraine could leave Europe vulnerable and compel nations to take greater responsibility for their defense.
European leaders have begun discussions on strategic autonomy, but without US backing, the continent’s security would be jeopardized, forcing nations to divert resources into defense at the expense of other critical investments.
What about China?
While the candidates differ significantly in their approaches to Europe, both Harris and Trump share a tough stance on China.
There is bipartisan consensus in the US that views China as a strategic rival, and both candidates are likely to continue efforts to contain China’s influence, particularly in technology and trade.
This presents a tricky situation for Europe, which has tried to maintain strong trade ties with both the US and China.
For companies like ASML, a Dutch supplier of semiconductor manufacturing equipment, the situation is already causing headaches.
Under pressure from the US, ASML has faced export bans on key products to China.
This pressure is expected to persist regardless of the election outcome. As Zach Meyers of the Centre for European Reform notes, Europe may soon have to choose between aligning with US policies or risking further trade restrictions with China.
With half of Europe’s economic output linked to trade, the region is highly exposed to disruptions in global commerce.
The US election raises the question of whether Europe can continue to benefit from US economic growth while maintaining ties with China, or if it will be forced to pick sides in an increasingly polarized global economy.
Tariffs vs. subsidies: which is worse for Europe?
For European manufacturers, the concern extends beyond tariffs.
There is growing anxiety about how the US election will shape domestic industrial policies, particularly regarding the future of green energy subsidies.
Trump has hinted at scrapping Biden’s IRA subsidies for green energy, which could create uncertainty for European companies operating in the US.
While the IRA has been criticized in Europe for fostering unfair competition, particularly in the green energy sector, it has also created opportunities for European companies with a foothold in the US market.
If Harris wins, these opportunities are likely to continue, albeit under the same competitive pressures.
For businesses, the real risk lies in Trump’s unpredictability, which could lead to abrupt policy reversals and a potential blow to transatlantic investments.
Could this election be a wake-up call?
Amid these concerns, some European analysts argue that the US election could serve as a wake-up call for the EU to implement long-overdue reforms.
Former European Central Bank (ECB) chief Mario Draghi has emphasized the need for Europe to revitalize its economy and enhance competitiveness in light of its shrinking economic size relative to the US.
The challenges posed by a potential Trump presidency, in particular, could be the catalyst that finally compels Europe to address its internal weaknesses.
Pro-European optimists suggest that a more tense transatlantic relationship could spur the region to adopt the deep structural reforms necessary to compete on the global stage.
Investors may feel that the US election adds another layer of uncertainty to an already fragile European economy.
The risks are clear: a second Trump presidency could trigger trade wars, increase defense costs, and deepen geopolitical instability.
While a Harris presidency may be less volatile, it would still pose challenges, particularly regarding industrial policy and defense spending.
Regardless of who wins, the outcome will shape the future of transatlantic relations and the region’s economic fortunes for years to come.
A Trump victory could lead to increased tariffs and trade wars, ultimately harming European exports.
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