The Impact of Trump’s Election on the European Economy

Trump’s second term not only carries the promise of more trade conflict between the US and the EU, it may prompt more policy tweaks and modifications. Trump distrusted multilateralism in his first term and repeatedly railed against the EU as having “unfair” trade privileges. In this way, U.S. and EU economic and trade relations are likely to be even more nuanced in the years to come. Trump could very well maintain an “America First” economic policy that puts even more on the EU. This creates numerous problems for the EU such as the need to reset trade ties, manage shocks in export sectors, work with a risky investment environment and deal with geopolitical risks.

First of all, US-EU trade may get worse. “Mr. Trump’s talk during the campaign of making the European Union ‘pay a big price’ for not buying enough American imports and imposing across-the-board tariffs of 10 or 20 percent may be a starting point for negotiations.” Economists estimate that these tariffs would cut Europe’s GDP by up to 1.5% – that’s around €150 billion. The automotive sector stands out as particularly susceptible with jobs being lost and competitiveness being depressed. European policymakers are also considering measures to mitigate these effects, such as promoting trade partnerships and internal markets.  As President of the United States in his first term, Trump imposed tariffs on EU automotive and steel to protect US domestic production from imports. It’s a policy that has hit export-oriented EU companies hard, including Germany’s automotive sector. Eventually, the Trump administration might extend tariffs to other European goods and squeeze even more EU companies out of the market share. Further, the US could create additional non-tariff measures – technical specifications, environmental controls – to make it more difficult for European goods to find their way to the US market.

Secondly, Trump’s actions will destabilize the European investment climate. The internationalized world has brought many multinational corporations to Europe to set up production plants to stay competitive in research and innovation. But Trump’s moves could change Europe’s investment climate if US firms are encouraged to return their business to the US. That could negatively impact European jobs and possibly undermine Europe’s scientific and technological dominance. These effects could be alleviated if the EU continued to optimize investment policies and incentivize non-US investors to absorb the negative impact of American measures.

In summary, Trump’s re-election forces Europe to rethink its economic policy and create more nimble policies in the new environment. The EU’s situation is not just a question of external shocks, but internal ones: unbalanced economies, back-loaded structural reforms, an aging society – all this complicates its response. In the future, economic development would tend to be more diversification-oriented and regional integration-based, with enlargement of trade relationships with emerging markets in Asia-Pacific and Africa to ease dependency on the US market. At the same time, the EU must also strengthen its internal market and be competitive in innovation and environmental performance in order to buffer against external shocks.

For the EU, in an increasingly globalized economy, how it will deal with the aftermath of Trump’s re-election is of high importance. And if it manages to strike the right balance between globalization and protectionism, internal reform and external partnership, then the EU could unlock new prospects in an epoch of doubt and lay the basis for economic development and an expanded global role.

According to an article, Trump’s trade policy is a break with multilateralism and promotes protectionism, which has redefined international trade, infringing upon old alliances and agreements. It’s centered around the “America First” vision to close the U.S. trade deficit, especially with major economic partners like China and the EU. Trump’s main weapon was tariffs, high import taxes on Chinese products, but also on EU, Canadian and Mexican products. These were supposed to promote domestic production by driving foreign goods to a lower price and thus out of competition in the U.S. This policy affected both American consumers and manufacturers that depended on foreign inputs, but had wider implications for international trade.

One of the most important aspects of Trump’s trade plan was to be bilateral instead of multilateral trade. Trump also pulled out of the Trans-Pacific Partnership (TPP), calling it bad for US interests, and canceled the Transatlantic Trade and Investment Partnership (TTIP) with the EU. In refusing to accept such multilateral models, Trump essentially declared a shift to negotiating directly with nations to build leverage and advance American economic interests. This position was mostly a disavowal of the World Trade Organization (WTO) framework, since the Trump administration in the United States undermined the WTO dispute settlement process, further diminishing the body’s capacity to arbitrate global trade disputes.

Trump’s tariffs and trade policy affected everyone. The U.S.-China trade war put the world’s two largest economies at strain, rupturing global supply chains and markets around the world. The effects were felt indirectly by ASEAN states and the EU, as trade routes and alliances changed. The US import restrictions on EU steel and aluminum strained transatlantic ties as well, breaking centuries of alliances and fraying transnational supply chains in industries that depended on it. Trump’s unilateral tariffs under the banner of national security concerns against sectors such as steel troubled allies who wondered about the reliability of such excuses.

Trump’s stance on China was especially hard-line: trade but also FDI and IP issues were on the list. The U.S. censored exports of high-tech products and discouraged Chinese investments in American hotbeds, especially technology. This animosity contributed to an economic and political division between the two countries that intensified anxieties about the global economy.

Further, Trump’s economic policy increased the division between income and wealth in the United States, with the 2017 tax cuts mostly for corporations and the rich. The policy was supposed to restore manufacturing jobs, but did so only intermittently. The gap in incomes and dissatisfaction with globalization must have driven populist endorsements of Trump’s policies, and protectionism and nationalism were taking off beyond the United States.

One effect of Trump’s trade policy was the demise of multilateralism. His administration’s distrust of international institutions such as the WTO undermined traditional mechanisms of trade dispute resolution and promoted economic isolationism. This model made allies and trading partners uncertain and uncoordinated from solutions to the global economic crisis. Future generations will know that Trump’s policies will become a model for other American governments if they remain protectionists or go back to multilateralism. We won’t know until years later whether this policy shift will continue to sway the U.S. and world economies. However, Trump’s policies have underscored the risks and complexities of an economically isolationist stance in an increasingly interconnected world, challenging the stability and resilience of global trade networks.

Trump’s re-election will inevitably have an impact on the European economy, especially in terms of trade, exports, investment and geopolitics. The tougher trade policy of the United States under Trump’s leadership may put pressure on many key industries, posing a potential threat to Europe’s economic stability and global status.

The protectionist-strengthening trade policy of Trump has had a major impact on the European economy, bringing with it more trade uncertainty and weakening stable economic conditions. This was an attempt to close the U.S. trade deficit through tariffs and trade barriers that had ramifications for Europe, an export-oriented economy dependent on international trade. Especially notable were tariff hikes on steel and aluminum, followed by EU reprisals and trade wars that broke supply chains and caused more costs for EU manufacturers (particularly automotive and industrial producers).

If this trade war caused by Trump’s tariffs escalates, Europe is set for serious economic losses. A contained trade war with 5% tariffs on non-critical imports will cut European exports by $38.6 billion between 2025 and 2026, but a fully fledged trade war could add $124.8 billion. It’s Germany, Europe’s largest exporter, that stands to suffer the most, as it could be affected by the tariffs and lose out on around $8 billion in exports, Allianz says. It might hit trade-dependent countries like Germany and the Netherlands especially hard, where a 10% universal tariff will lead to steep reductions in exports to the US, according to estimates from the Dutch bank ABN Amro.

As the senior economist Maxime Darmet of Allianz Trade points out, Trump’s tariffs would bring a great deal of uncertainty that would negatively impact investments in Europe. The tariffs are likely to impact European industries such as machinery, equipment, automobiles, chemicals, pharmaceuticals and agri-food, Darmet says, among Europe’s biggest exporters to the United States and Europe’s direct export losses will likely exceed those of China, in part because China would probably cushion the hit with fiscal stimulus, but Europe is less ripe for fiscal stimulus.

According to Dutch bank ING , adding to the pressure, an extension of the trade war would send the eurozone economy into full recession. That could slow things down is a major worry as Europe still struggles with post-pandemic recovery and inflation. Europe would be the biggest exporter, but the rest of the world’s exporters will also be deeply hurt in a trade war. Two years’ worth of exports by China, the second largest exporter to the United States behind Mexico, could disappear for $125.3 billion (the most anywhere in the world). Other major economies such as Mexico ($52.1 billion), Canada ($39.2 billion), Japan ($24.3 billion) and South Korea ($20.3 billion) will be hit even more hard if a 10% general tariff is implemented.

In all, the tariffs would be a grave threat to international trade and Europe and China are among the most affected. This economic uncertainty and recession threat point to contingency plans for trade-based economies, as the change in U.S. trade policy will alter investment and export plans around the world.

Investment patterns have also shifted. European firms are less likely to invest in the United States because of policy turbulence, and American firms are more likely to look again at European investment, especially in sectors that will face higher tariffs. Uncertainty over long-term tariffs discouraged investment in the long term, impacting jobs and growth in the EU.

In addition, Trump’s preference for bilateral rather than multilateral deals has forced Europe to reevaluate its trade policy and the global trading system becomes more disorganized and fractious. In the face of these tensions, the EU has tried to beef up intra-European commerce and its trade with Asia and other partners around the world.

Lastly, Trump’s trade policies have fed populist movements across Europe as unemployment and economic troubles caused by trade wars have fueled nationalism. This has brought with it additional EU-wide political demands that have been a strain on the EU’s unity and openness to trade. The cumulative effects of Trump’s trade policy, then, go beyond short-term economic volatility to affect longer-term EU policy choices, investment and political stability in the bloc.

Europe’s response to the U.S. protectionist policies, particularly of Trump, is designed to build economic resilience, decouple from the U.S. market and shore up international cooperation. In the first, Europe is going for trade diversification, developing greater alliances with new markets in Asia, Africa and Latin America. EU — by increasing economic cooperation with nations such as ASEAN — saves the EU from U.S. tariffs on important industries such as machinery, automobile and technology.

With a less dependent relationship to the U.S. market, Europe can safeguard itself from unfavorable policy shifts by the US administration. This is a place where having strong trade relations with new markets in Asia-Pacific, Africa, and Latin America are essential. Chinese, Japanese and South Korean economies in the Asia-Pacific have huge growth potential for European exports in the machinery, drugs and luxury segments. The extension of these relationships could act as a protection against shifting trade policy by the United States.

Then there are partnerships with African countries with lots of potential. Africa would see a lot of economic growth over the next few decades as the middle class grows, as demand for industrial output, health products and infrastructure continues to increase. By working on economic cooperation and investment in African markets, Europe can create a win-win situation between economic development and the development of new markets for European products. The developing economies of Latin America – especially Brazil, Argentina and Mexico – also hold opportunities for mixed trade in agriculture, technology and renewables.

These corporations can be advanced by free trade agreements (FTAs) and investment agreements with the EU, such as the ones already signed with Japan and South Korea. Renewed cooperation and more trade with ASEAN nations and India can further facilitate Europe’s entry into the burgeoning Asian markets. Europe will also have less reliance on any one partner, and an enhanced trade network less subject to US trade policies.

The EU will have to reshape its economic policies within the EU itself, if it wants to strengthen its strength against economic pressures from the outside. The second is to accelerate the green economy transition. Europe can be an environmental innovator if it invests in sustainable industries, renewable energy and low-carbon technologies. Not only does this increase economic resilience, but it is also in tune with the global agenda of sustainability and Europe is a natural trade partner for green policy-conscious nations. It can also raise the EU’s competitiveness by investing more in technology and innovation. Funding digital transformation, artificial intelligence and biotechnology industries will prepare Europe for the next economic storm and bring high value jobs. One such endeavor is the EU’s Horizon Europe programme, which has a massive investment in research and innovation, and can be strengthened even further so that Europe can continue to lead the technological revolution.

Fiscal and monetary policy needs to coordinate, too, in order to prevent disruption from trade policy changes. European policy can become more economic and more integrated among the member states so that policy will not fragment, which could be an erosion of its ability to meet the challenge from the outside world. Better fiscal coordination would enable members to converge on coordinated responses to changes in trade and better monetary policy coordination would stabilize the eurozone during periods of economic turmoil. They could stop the resulting fragmentation of responses during financial crises, so that the EU can set out a coherent economic agenda.

Developing closer economic ties with China and other emerging markets is one element of Europe’s response plan. As the world’s second-largest economy, China is also a big chance for Europe. With the EU in close contact with China, the exports of luxury goods, cars and renewable energy technology could have a huge market waiting for them. And the Chinese government’s Belt and Road Initiative (BRI) promises infrastructure investments that could bolster Europe and Asia’s integration, perhaps amplifying European role on trade routes. Other emerging economies in Southeast Asia, Latin America and Africa can also be expanded as partners of the EU, in addition to China. : India, Indonesia, Brazil – all of these countries with high potential and rising consumer base offer new markets for European exports. Trade deals with these countries and bilateral or multilateral collaborations allow the EU to build a diverse set of economic relationships that reduces its vulnerability to U.S. protectionism.

Political compromise, intellectual property and market access issues be damned – but the EU can be pragmatic about its engagement with China, pursuing economic interests in line with political considerations. Negotiating the EU-China Comprehensive Agreement on Investment (CAI) and ensuring equal conditions for European firms in China are necessary steps to protect Europe’s economic interests while limiting competition from Chinese enterprises.

When facing US protectionist trade policies, Europe looks for new ways to diversify trade relationships and build its own internal resilience. Europe seeks to reduce dependence on the United States and protect its own economic stability through cooperative relations with developing countries, policy changes and the enlargement of its internal market. In a world where trade disputes are only getting more complex, such measures will prove vital if Europe is to keep its competitive advantage and prosper in a multipolar economy.

The re-election of Donald Trump has brought the European economy new challenges and has compelled the European Union (EU) to rethink and redeploy its economic policies. In an environment of a more protectist and unilateral U.S. trade policy, the EU needs to be proactive in order to safeguard its economic interests and resilience. The focus is on reforming the internal market, broadening trade relationships and increasing relations with developing countries. With these steps, Europe wants to be less reliant on the U.S. market and will protect itself from the economic effects of a potentially unpredictable U.S. policy.

 Europe’s economic standing in the world economy is certainly under threat from changes in US policy and, of course, protectionism more generally. But through flexible, generative policies, the EU can not only weather such storms, it can also harness them for expansion and development. The realignment and adaptation will take strategic adjustments in economic policy and political leadership and grit on the part of Europeans. Through investments in the internal market, the expansion of global trade and more robustness to economic shocks, Europe will be able to compete better in the future on a global scale.

In conclusion the EU’s reaction to Trump’s re-election and its subsequent protectionist policies was part of a larger shift in the EU’s foreign policy and its economic policy towards the world. What Europe can do to accommodate these changes will be what counts for its success in a more multipolar world in which economic influence is spread out across multiple powerful regions. If prepared, Europe will walk away from this time of economic instability stronger, more independent and better positioned to deal with the global economy. This is not only a policy that protects Europe’s short-term economic interests, it is also the path for long-term prosperity and influence over the coming decades.

By Hongyi Gao