On Russia’s war in Ukraine, one must consider several elements. Philippe Ledent, expert economist at ING Bank in Brussels, expects an acceleration of defence spending in the old continent on the back of a Trump victory, a boost for economic growth. Yet he is unclear on the net impact for Europe, as a reduction of US involvement in its support of Ukraine may also instil concerns--or even fear--about stability and therefore refrain economic actors from investing. He does not expect any change to the status quo under a Harris administration.
On the Middle East, Ledent is concerned about a more aggressive stance and an unpredictable Trump administration may result into higher oil prices, pushing up inflation resulting into an impoverishment of the European economies. “It reflects Europe’s dependence on the import of natural resources,” he said during an interview on 21 October 2024. Somewhat cynically, he reminded Paperjam that the US is self-sufficient in energy and consequently higher oil prices are overall positive for its petroleum industry.
Increasing tensions (more likely with Harris than with Trump) between the US and China on Taiwan will impact Europe through its access to the chips industry and the implementation of mutual sanctions against each other.
Inflation may show its teeth again
“These [adverse] geopolitical [developments] may result in inflation declining less rapidly and may even rebound in the eurozone,” commented Ledent. Coupled with a slowdown of the economy, “that would be the worst outcome for the European Central Bank.” Indeed, the ECB may not be able to cut interest rates as much as expected today.
The monetary policy impact of a Trump victory is clear. [Interest] rates will be higher than in a scenario without Trump,
Paperjam thinks that potential higher tariffs may increase prices in the US and Europe, an outcome that will not only delay future decisions to cut interest rates by the Fed but also result in reciprocal tariffs against US goods imported in Europe, complicating even more the task of the ECB on interest rates.
Besides, potential lower taxes on US companies will likely cascade down to Europe as higher US deficits will be followed by the higher issuance of US treasuries. That larger debt supply will likely push US interest rates higher, as well as European interest rates in their wake, as both interest rate curves rarely move independently of each other.
“The monetary policy impact of a Trump victory is clear. [Interest] rates will be higher than in a scenario without Trump,” confirmed Ledent.
Could a Trump administration create an opportunity for Europe and the US to get closer together?
Given geopolitical tensions, Paperjam thinks that Europe may seize the opportunity to work more closely with America on matters such as defence, energy (natural gas, coal, nuclear, Trump is not a fan of renewables) while untangling some of its dependence on China (renewable products and rare earths) and give American products and services greater access to the EU common market to avoid painful tariffs on EU goods sold in the US.
One should not delude himself. Whether it is Trump or Harris, neither of them will work at improving the economic prospects of Europe
“The question is whether Europe is a third bloc in-between the US and the East” wondered Ledent. The alternative is a greater rapprochement between Europe and the US, a Western bloc, on the back of the former’s poor economic performance.
However, it must be said that backing away from China is a long-term endeavour, should Europe elect to go in that direction. Indeed, Ledent believes that “a disentanglement between countries takes generally a long time, minimum five years.” China will not be a passive observer. “It is of vital importance for China to maintain export markets,” stressed Ledent.
“One should not delude himself. Whether it is Trump or Harris, neither of them will work at improving the economic prospects of Europe,” reminded Ledent. He does not consider such a rapprochement as an opportunity, but rather a geopolitical choice of a constrained and contrived Europe. Consequently, any positive economic outcome in Europe would come from unexpected side effects.