One hundred days before the US presidential elections, Europe is wondering what it has to face with Donald Trump or Kamala Harris in the White House.
The questions involve, of course, very different scenarios for economic policy, beyond questions of international politics.
Donald Trump: “European Union” sounds so good. We love Scotland and Germany. We love all these places. But they treat us violently.”
Trump has cited Europe’s reluctance to import American cars and agricultural products as a key reason for America’s more than $200 billion trade deficit with the EU. And so it must be curtailed by imposing tariffs of up to 10% on imports of European goods into the US.
The lessons
Many conclusions can be drawn from the experiences of Trump’s first term, but also from the last four years of Joe Biden, as Kamala Harris, if elected, is expected to largely follow the policies of the outgoing president.
A second Trump term, however, would be characterized by unpredictable aggression and increased protectionism.
He has threatened to build a protective wall around the US. He will use tariffs as leverage to achieve short-term advantages for the US and will curtail or even abandon multilateral regulatory systems and institutions. Europe will also have to reposition itself in security policy if the American “umbrella” weakens.
Tariffs, a weaker dollar and high defense spending are at least three of Trump’s central economic threats against Europe if he is elected president.
After all, Trump wants to get rid of Jeremy Powell, the chairman of the Federal Reserve, as soon as possible, in order to pressure the Fed to accelerate the pace of interest rate cuts in order to stimulate the American economy.
Kamala’s Europe
On the contrary, for Kamala Harris there are high expectations for cooperation with the European Union. But it is expected that he will either stick with the Biden Inflation Reduction Act (IRA) or replace it with a new program of similar dimensions, aimed at attracting European giants to America.
Things would be different in a second Trump term. Trump would smash the IRA law en masse, thus offering Europe a chance to retain or even regain its green industries.
No illusions about Harris
Kamala Harris, like Trump, will be tougher on trade policy than Biden, going forward. That is why the EU must prepare for the fact that Harris would be a president who would be less interested in Europe than
Biden.
Additionally, Kamala Harris would step on Europeans’ toes and demand a greater military commitment and higher defense spending.
The economic implications of a potential US withdrawal from Europe are obvious. Today the EU is exploring the possibility of issuing Eurobonds, i.e. joint debt, in order to increase defense spending. Initial estimates were 100 billion euros, but with Trump in the White House the cost to European defense would be up to two or three times higher.
The three central threats
Tariffs, a weaker dollar to boost exports and high defense spending are at least three of Trump’s central economic threats against Europe if elected president.
As for Harris, market players estimate that she will not interfere with Powell’s work to curb inflation, but that she too will pursue a tougher trade policy, with high tariffs not only on China but also on Europe.
The anti-Chinese trade strategy will extend to Europe to the extent that China’s overproduction intensifies its search for markets in the EU.
