European central bankers are losing sleep over the possibility of Donald Trump returning to the White House. The fear is clear. Trump’s aggressive trade policies, especially his love for tariffs, could crash their already fragile economies.
With the continent still reeling from inflation and slow growth, a second Trump administration could complicate things even further.
Investors are on high alert, and analysts say Trump’s return could push the euro down to parity with the dollar. Europe just can’t afford another economic blow right now.
European economies already struggling
Trump has promised a 60% tariff on Chinese goods and up to 20% on everyone else. If he follows through, this would create the biggest trade disruption since the Smoot-Hawley Tariff Act that helped worsen the Great Depression in the 1930s.
Such measures could hit Europe hard. The eurozone’s position is much weaker now compared to when Trump was last in office from 2017 to 2021. This time, Europe isn’t in a place to handle it.
According to people in the know, some officials in Frankfurt, London, and Stockholm have been talking about the chaos another Trump term could bring.
They’re especially nervous this week, as they gather in Washington for the International Monetary Fund (IMF) meetings.
Europe is in a much worse situation than it was back in 2017 when Europe wasn’t dealing with wars in Ukraine or the Middle East.
The eurozone had just posted its best annual growth in a decade, and the UK was having its strongest year since 2014. Compare that to today: growth is stalling in the UK, and Germany is heading for its second annual contraction in a row.
French businesses and households are facing a brutal €60 billion ($65 billion) in spending cuts and tax hikes. Business surveys across Europe are grim, and the European Central Bank (ECB) had to move up its plans for an interest-rate cut to soften the blow.
Central bankers on high alert
In January, European Central Bank President Christine Lagarde also warned that Trump’s trade policies were a huge problem.
Over the summer, officials invited Jan Hatzius, chief economist at Goldman Sachs, to discuss the impact of tariffs at their retreat in Sintra, Portugal.
These concerns are still top of mind. Last week, Lagarde said, “Any restriction, any uncertainty, any obstacles to trade matter for an economy like Europe’s.”
She added that any move to increase trade barriers, including tariffs, would undoubtedly hurt European economies. Bank of England Governor Andrew Bailey has taken a more measured approach.
He said in August that the central bank is “obviously interested in the outcome” of the U.S. election but wouldn’t speculate on what might happen.
While most central bankers are trying to stay neutral, some are clearly on edge. The governor of Sweden’s central bank, Erik Thedeen, recently traveled to the U.S. to gauge the potential fallout.
“You have to be very careful assuming that what Trump says now will actually become policy,” Thedeen said. He added that it is important to see what Trump’s economic strategy will be if he wins.
Not everyone is convinced Trump will follow through on his threats. Some believe that Trump’s tariffs might not hit Europe as hard as feared.
But Thedeen said that even a Kamala Harris presidency wouldn’t guarantee a trade-friendly environment. Her team has privately signaled plans to continue many of Joe Biden’s policies, including duties on billions of dollars worth of Chinese goods.
For Europe, the stakes are high. Germany, the region’s economic powerhouse, is particularly vulnerable. With its manufacturing sector already suffering, the last thing Germany needs is another trade war with the U.S.
Trump’s track record on trade isn’t exactly reassuring. During his first term, his protectionist policies led to a downturn in transatlantic relations. This time, the European Union is preparing for the worst.
Source: https://www.cryptopolitan.com/europe-fears-economic-fallout-with-trumps-potential-return-to-the-white-house/