As the presidential election approaches in the United States, Europe is closely following the tight race between Kamala Harris and Donald Trump, each carrying an economic and geopolitical vision whose repercussions could hit the continent hard. In recent years, while economic activity in the Old Continent stagnated, European companies have turned massively to America, where household consumption represents 30% of global spending.
In 2022, European exports of goods to the United States will exceed 500 billion euros, representing 4% of European GDP and generating a trade surplus of 160 billion euros, according to the European Council. Since 2018, retail sales there have increased by 15% in volume, twice as fast as in the European Union (EU).
However, the return of Donald Trump to the White House, with a promise of a trade war not only against China but also Europe, could change the situation. “Donald Trump’s protectionist options have become largely radical compared to his first term”estimates Ruben Nizard, head of socio-political risk analysis at Coface. His plan includes a 10 percentage point hike in tariffs for all imported goods, and 60 percentage points for those from China — significant increases compared to the current tariffs of 3.3 percent in the United States and 3.9% worldwide.
A risk of fragmentation of world trade, Europe hit hard
Economists at Goldman Sachs predict that such an increase in customs duties would reduce European GDP by around 1% within three years. The impact would be all the more significant for Germany, which is particularly dependent on exports to the United States (machinery, chemicals, etc.) and is already experiencing a recession for the second consecutive year. If no sector is specifically targeted by the Republican candidate, we know that areas such as aeronautics or agriculture would be particularly exposed to a strengthening of customs barriers.
At the same time, the deflationary pressure that China could exert in the event of American trade restrictions would put European industries in difficulty, likely to be flooded with low-cost Chinese products, pushing the EU towards costly protectionist measures.
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Kamala Harris also follows a protectionist path, although more moderate than that of the former president, via sectoral subsidies (artificial intelligence, green energies, biomedical, aeronautics, space), strategic and high value-added sectors in which she hopes to strengthen the position of the United States, to the detriment of the European champions. However, Ruben Nizard observes that a victory for the vice-president would be less destabilizing for Europe due to continuity with the Biden administration. “Even if points of tension will remain, the transatlantic partnership remains a strong axis for Harris“, he declares.
Exchange rate instabilities
The American federal budget could follow very different trajectories depending on the winner. Donald Trump is proposing a drastic reduction in public spending on the energy transition, combined with tax cuts for businesses and retirees – a costly program that would widen the deficit by $460 billion, according to the University of Pennsylvania. Kamala Harris, for her part, advocates a more moderate but also expansionary budget program, with targeted tax cuts for low-income families and an increase in corporate taxes, thus reducing the deficit to half of that of his opponent.
As Ruben Nizard states, “reducing the federal deficit is not among the priorities of either candidate: the United States, thanks to its financing flexibility unique in the world and the status of the dollar as a reserve currency, can afford high deficit levels“, however “in the long term, this could erode confidence in their ability to honor their obligations».
However, the scale of these deficits would have direct repercussions on Europe. Rising US public debt could lead to instability in exchange rates and capital movements, affecting the European financial market. If deficits increase, the Fed could react by raising rates, which would strengthen the dollar against the euro, thus penalizing European exports.
First-rate geopolitical threats
«The American policeman returns home», summarizes Gérard Araud, former French ambassador to Washington. Beyond the economic aspects, the geopolitical intentions of the two candidates seriously concern Europeans. Donald Trump advocates isolationist diplomacy, with Europe’s disengagement in favor of the Asia-Pacific, and announces that he wants to reduce aid to Ukraine, which could weaken European unity in the face of Moscow and increase financial pressure on member states to support kyiv. Even with a victory for Kamala Harris, the United States would turn more towards Asia, a new geostrategic center in a context of growing tensions with Beijing. This geopolitical destabilization would necessarily have significant economic repercussions in the medium and long term.
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Finally, on the climate front, a return to a less ambitious policy under Donald Trump would risk slowing down global decarbonization efforts, leaving Europe isolated in its ecological transition, potentially slowed down by less favorable international choices. Kamala Harris, despite supporting fracking for electoral reasons, pledges to continue investments in green energy via the Inflation Reduction Act (IRA) — a policy which, although criticized for its protectionist aspects, could benefit to European manufacturers in the sector.
Regardless of the outcome of this election, the United States will continue to invest heavily in cutting-edge technologies, consolidating its advantage in innovation. Ruben Nizard recalls that Europe “must prepare for years of intensified competition», by strengthening its infrastructure and supporting its innovative and industrially competitive companies.
