For Europe’s economy, the U.S. election on November 5 will have impact as presents a choice between two challenging scenarios: a potentially difficult presidency under Kamala Harris, or a second term for Donald Trump, which could be even more tumultuous than his first. In two critical areas—trade policy and sharing the growing costs of NATO’s security—Europe anticipates little relief from a Harris presidency, which is seen as a continuation of Biden’s approach.
A second Trump term, however, poses several risks: a potential withdrawal of U.S. support for Ukraine would compel European nations to rapidly increase defense spending, and a global trade war initiated by Trump could leave Europe at a significant disadvantage.
Bipartisan support in the U.S. for anti-China measures complicates the situation for Europe’s export-oriented economy, raising doubts about whether it can continue to balance trade relationships with both the U.S. and China. “Regardless of who wins the U.S. election, it remains uncertain whether Europe can keep benefiting from U.S. growth without reducing trade with China,” said Zach Meyers of the Centre for European Reform (CER). Both candidates seem to be heading in the same direction, though Trump may be more unpredictable and confrontational with the EU.
For companies like ASML, a Dutch supplier of advanced microchip manufacturing equipment, the threat of being affected by U.S. efforts to curb China’s tech advancements is significant. The company already faces export restrictions to China on half its products, following a U.S.-led initiative. “There is a strong bipartisan push in the U.S. for more restrictions, and this stance is likely to persist regardless of the election outcome,” ASML’s CEO Christophe Fouquet said at a conference.
With trade contributing to half of Europe’s economic output—double the share in the U.S.—and 30 million manufacturing jobs at stake, the region is particularly vulnerable to any disruption in commerce. In Washington, support for free trade has waned over the past decade. Joe Biden, rather than removing the tariffs introduced during Trump’s first term, has imposed his own measures focused on U.S. jobs through the Inflation Reduction Act (IRA).
While Harris is expected to follow a similar path as Biden, Trump has threatened to introduce sweeping tariffs of 10-20% on all imports, including those from Europe, with whom the U.S. still engages in over a trillion euros’ worth of annual trade. Spanish olive exporters, for instance, have seen a 70% decline in sales to the U.S. since Trump imposed tariffs in 2018, despite World Trade Organization rulings against them. “If Trump wins, the situation could worsen and have impact, and resolving it without pressure from Europe would be difficult,” said Antonio de Mora, head of ASEMESA, which represents Spain’s olive exporters.
For European companies with U.S. operations, there is also uncertainty over whether Trump would follow through on his promise to repeal Biden’s IRA green energy subsidies. For example, German machinery manufacturer Trumpf, which employs 2,000 people in the U.S. and supplies equipment for electric vehicle batteries and solar energy, has decided not to expand its U.S. operations due to uncertainty over the election’s outcome.
The election could significantly impact defense budgets across European countries, which are already dealing with high debt levels following pandemic recovery efforts. The timing of increased defense spending remains uncertain: Harris is expected to continue pressuring Europe to share more of the regional security burden, while Trump’s ambiguous stance on Ukraine raises the stakes.
According to UBS analysts, a Trump presidency would increase the likelihood of a rapid escalation in defense spending, whereas a Harris presidency might allow Europe more time to adapt. While a Harris administration might not have a significant immediate impact on Europe’s economy, the potential downsides of a second Trump term are evident.
Goldman Sachs economists estimate that if Trump were to implement additional tariffs, their direct effects and the trade uncertainty they would generate could reduce the euro area’s economic output by one percentage point, significantly impacting the already weak 0.8% growth forecast for this year. Any economic boost from increased defense spending would likely be offset by the regional economic hit resulting from the heightened geopolitical risks.
The European Commission has established a closed-door group to assess how the election outcome might affect the EU. However, reaching a consensus on policy actions could be challenging, as illustrated by the bloc’s divisions over how to handle Chinese electric vehicle imports.
Some pro-European observers suggest that a Trump victory could serve as a wake-up call, prompting the EU to implement the kind of deep reforms recently proposed by former European Central Bank chief Mario Draghi. “The prospect of more strained transatlantic relations should motivate the EU to address the factors contributing to its shrinking economic stature compared to the U.S.,” noted the CER.
