In a week we will know if Donald Trump returns to the White House or if Kamala Harris will be the first female president of the United States. However, if Trump wins the elections, at Edmond de Rothschild we foresee changes in US trade policy. In the past, Trump pivoted toward a protectionist policy, raising tariffs, and has made clear that intends to continue with that approach.
This time, he plans to impose a universal tariff of 10% to 20% on all imports, which would be a relevant increase compared to the current average tariff of 2%. In addition, he has hinted that products arriving from China could have to face tariffs of up to 60%, an impact that will have serious consequences that will not only affect China, but also key trading partners such as the European Union. This approach could have a disruptive effect on international trade relations, affecting key sectors such as automobiles and technology. According to figures, American imports from the EU in 2023 reached $450 billionand any additional tariff would make these products significantly more expensive, affecting both American consumers (although they would benefit from income tax cuts) and European export companies; somehow generating an inflationary effect in USAat least in the short term.
For Europe, Trump poses a risk of increased volatility in the short term. The fear of resuming the trade war, together with political uncertainty, could drag down some European sectors, particularly export-oriented. Furthermore, political uncertainty surrounding a possible withdrawal or weakening of the US commitment to NATO, especially amid the conflict between Russia and Ukraine, would add further pressure to the markets. Concerns that Trump could reduce military support to Europe, coupled with the possibility that he may seek a quick deal with Russia, could destabilize European financial markets.since, for Europe, regional security is crucial for economic stability.
However, historically markets tend to recover after electionsregardless of the outcome, but the level of uncertainty that would accompany a Trump victory could prolong volatility for some time, especially if trade tensions intensify in European and emerging markets. The US market, on the other hand, could react positively to the expected tax cuts promised by Trump.
Thus, a Trump administration with aggressive trade policies could drastically reduce US foreign direct investment in Europe. Trade tensions and higher tariffs would increase risk and uncertainty for American companies operating in Europe, especially in sectors such as automobiles, technology and pharmaceuticals.
Under a Trump-led administration, the trade relationship between the US and the EU would be marked by protectionism and greater economic rivalry. Trump has advocated a unilateral approach with America Firsthence the use of tariffs to level the playing field in trade, which would probably mean that EU exports, particularly in sectors such as automobiles, machinery and electronics, would be in the crosshairs of new tariff charges. Trump has already threatened in the past to impose a 25% tariff on European car exportswhich would represent a very relevant additional cost for European manufacturers, at a time when Chinese competition is accelerating with the development of electric vehicles. He is also likely to use tariffs as a negotiating tool to pressure the EU to make concessions in other sectors, such as agriculture, where the US has long sought to gain greater access to the European market. Furthermore, Trump’s approach to deregulation in the US, especially in sectors such as energy, but also the health and technology sectors, it could increase the competitiveness of American companies compared to European ones. This could push the EU to tighten its own trade policies and engage in retaliation, which would negatively affect the relationship.
In 2023, EU exports to the US represented just over 2.5% of the Union’s GDP, while US exports to the EU were only equivalent to 1.5% of its GDP. Even so, the investment of American companies was close to 3 billion dollars in Europe, being the first destination of American multinationals. But this asymmetric dependence puts Europe in a more vulnerable position against Trump’s protectionist policies. Furthermore, Europe’s need to maintain a trade relationship with China could be compromised if the US intensifies pressure for Europe to follow its lead in restricting trade with China. On the American administration’s side, Trump’s victory could increase the US fiscal deficit to between 6 and 7.5 trillion dollars between now and 2035 (according to different models), which would put pressure on economic stability, indirectly affecting investments in Europe.
If we talk about sectors, the most vulnerable to a Trump victory would be those that depend largely on exports to the US. Like, for example, the automotive sector. If we consider that exports from this sector reach a value of more than 60 billion euros per year, by imposing a 25% tariff on vehicles – as has been suggested – this could significantly reduce the competitiveness of European manufacturers such as Volkswagen, BMW and Mercedes in the American market. Which, presumably, would affect both sales and profit margins. Porsche, which manufactures mainly in Germany, could be even more affected. The consumer discretionary sector would also be affected.
Europe exports luxury and consumer goods. Companies like Louis Vuitton or Gucci could face lower demand due to rising prices in the American market. Likewise, companies that rely on global supply chains, such as Apple, could face tariffs on European and Chinese components, jeopardizing the profitability of their operations in Europe.
Additionally, the renewable energy sector could also suffer under the Trump administration. Companies like Siemens or Schneider Electric, which are heavily invested in clean energy and electrification, could be harmed if the US reduces its support for renewable energy in favor of fossil fuels. This would affect the global push towards the energy transition, particularly in Europe, where efforts to combat climate change have been at the forefront of government policies.
It is true that the EU has been working to diversify its trade relations and reduce its dependence on the US in anticipation of a possible repetition of Trump’s protectionist policies. In recent years, the EU has signed trade agreements with countries such as Japan and Canada and has intensified its efforts to close agreements with countries in Latin America and Asia. In addition, the EU is strengthening its internal supply chains, particularly in critical sectors such as technology and renewable energy, to mitigate the effects of a possible trade war with the US.
In this sense, the investment program of the Green Deal European Union, which mobilizes more than 1 trillion euros to promote the energy transition, is a clear example of how the EU is preparing its economies to resist the negative impacts of protectionist policies in the US. On the other hand, The EU is also expected to use retaliatory tariffs, as it did during previous trade disputes with the Trump administration.. These tariffs would target key American products, such as motorcycles, fashion and agricultural products, which could increase tensions and trigger a full-scale trade war.
At an investment level, there are a number of key factors to take into account when evaluating the impact of a Trump victory. First, fiscal policy, including corporate tax cuts, could benefit certain sectors in the US. In the case of the financial sector, with new deregulation, less monopoly control or liberalization of the cryptoasset sector or the discretionary consumer sector, lower taxes or traditional energy, with less regulation of environmental issues. In this way, Trump’s policy transferred to American companies could boost earnings per share (EPS) in the SP 500 in the short term by 3% to 4%, while a Harris victory could reduce them by around 6% in the short term. 8%.
On the other hand, the Trump administration is going to pressure European countries to restrict their exchanges with China, which could put Europe in a complicated situation. since China is a key trading partner. Therefore, investors should be prepared for increased volatility in some parts of the market and those with exposure to sectors sensitive to trade tensions should evaluate diversification strategies or temporary mitigation of this event.
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