Donald Trump’s Second Presidential Term Threatens the EU’s Economic Stability, Particularly Export-heavy Industries

On 5 November, Republican candidate – and former US President – Donald Trump won the 2024 US presidential election over incumbent Vice President Kamala Harris, gaining a second term.

• While polling and early voting results indicated that the race between Harris and Trump would be neck-and-neck, the exit polls signalled that the race was far more one-sided than initially projected. Indeed, Trump could declare himself the winner on Election Night itself. He won all the major swing states—e.g., Michigan, Wisconsin, Georgia, and Pennsylvania—with the former president garnering support among both young and old voters. For the first time since 2004, the Republicans are poised to also win the popular vote.

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• While 55% of younger voters (e.g., those under thirty) voted for Vice President Harris overall, Harris lost votes amongst younger American and white male voters in the aforementioned swing states. However, Harris also lost ground amongst other ethnic groups. While 53% of Hispanic/Latino citizens voted for Harris, this level is lower than Biden’s support levels in 2020. Support for Trump increased more than 10 points amongst this group compared to 2020, particularly amongst male Latino voters, which was up 18 points compared to the previous election period. The female vote did go to Harris, but by smaller margins than anticipated.

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• In addition to the White House, the Republicans are projected to gain a majority in the US Senate as of the time of writing after earning at least 52 of the 100 available seats. The Republicans already controlled the House of Representatives before the election, with the Republican party only a few seats shy of a majority within the chamber. This majority in both legislative chambers will give the Trump administration an easier avenue to pass his policy proposals.

Short-term Implications (now-January)

The immediate impacts of the election results are likely to be limited, given that Trump cannot implement any policy changes until he is inaugurated on 20 January 2025. Nevertheless, markets’ and investors’ reactions to Trump’s victory have already impacted the global economy. Most notably, the US dollar has surged in value compared to other currencies, such as the Euro, Great British Pound (GBP), and Japanese Yen(JPY). The Euro has experienced the most significant reduction in value compared to the US dollar since the election, falling by 2.24%, the lowest since June 2024.

This trend appears to be driven by traders’ belief that the incoming administration will implement a series of tax cuts and deregulatory measures to spur higher interest rates from the US Central Bank, making holding US dollar securities more attractive. The growing strength of the US dollar could start to put downward pressure on foreign economies. Indeed, previous studies on the topic found that a 1% rise in the US dollar value vis-à-vis other currencies predicted a “0.6% decline in trade between countries in the rest of the world”. Such economic pressures are likely to get stronger as the incoming administration’s inauguration day inches closer, indicating a potentially slightly less favourable economic outcome for European countries from Q4 2024 and Q1 2025 onwards.

In tandem, less traditional currency markets have also seen a spike in value, with the value of Bitcoin increasing by USD 6,000 to an all-time high of USD 75,371.69. This spike is due mainly to investors hedging on Trump’s previous promises to deregulate the cryptocurrency market in the US and make the US “the bitcoin and cryptocurrency capital of the world.” Despite such promises, Trump has not revealed his policy platform to achieve this goal outside of broad promises for deregulation.

Midterm Implications (Coming two Years)

The mid-term implications of a second Trump presidency are currently unclear, given that many of Trump’s policies are yet to be expounded. Despite this, the policies that were promised and discussed during his election campaign indicate that the upcoming Trump presidency will have negative implications for the European Union (EU) and the Eurozone. Most notably, Trump promised to implement a 10-20% universal tariff on all US imports. There are uncertainties about whether Trump has the legal authority to implement these across-the-board tariffs. The US Constitution grants Congress the ability to“lay and collect taxes, duties […] to regulate commerce with foreign nations”.Despite this, Congress does have the authority to allow the US President to impose tariffs if certain “statutory conditions” are met or via several other legal authorities, such as Section 232 or 301.

As such, given that Trump is likely to implement some level of tariff against foreign nation-states, the degree to which these are implemented will determine their impact on European economies. The following sections examine the impacts of the two most likely scenarios vis-à-vis Trump’s tariff activity.

Scenario 1: Universal Tariff Implementation

In this scenario, a Trump administration would levy across-the-board tariffs against all US imports, including from the Eurozone. According to Dutch bank ABN Amro, the Eurozone exports an estimated 460 billion euros worth of goods and services to the US. The Dutch bank claimed that Trump’s promised 10% tariffs would likely result in exports to the US falling by nearly 33.3%. While such a decline would likely have notable impacts for all European countries, the effects will likely be most significantly felt by Europe’s top export-reliant countries, such as the Netherlands and Germany.

The Netherlands and its export-focused businesses, in particular, will likely suffer from the broad implementation of tariffs. According to the Dutch Central Bureau of Statistics, the US is the Netherlands’ fourth largest export market, with an estimated 24 billion euros worth of trade between the two countries. However, the effects of these tariffs are unlikely to be equally felt by all industries within the Netherlands. Sectors such as machinery, chemicals, mineral fuel, defence, aviation, and beverages (particularly beer)are likely to be most negatively impacted by Trump’s tariffs as they are the Dutch industries that export the most to the US. A 33.3% reduction in exports from these sectors will likely have adverse financial consequences and result in businesses taking precautionary measures to ensure continued financial stability. These measures could include layoffs, strategic restructurings, or salary/bonus freezes. This could have secondary-level impacts on the Dutch economy, such as higher unemployment and reduced consumer spending. This would negatively impact customer-dependent industries such as hospitality or retail.

While European countries’ responses to this scenario are currently unclear, they will likely take several approaches to minimise the impact of Trump’s tariffs on the Eurozone. The most likely response is that the EU countries will start a negotiation process with the Trump cabinet to see if they can get exemptions from the 10% tariff (see scenario 2) in exchange for a number of benefits. These could range from insurance that European businesses will buy a particular volume of US goods to additional subsidies for US businesses looking to expand their operations in Europe. In tandem, the EU will likely seek to protect EU firms impacted by the tariffs by implementing subsidies or tax relief to maintain their competitiveness in their market and reduce their dependency on the US. However, such protections could be difficult to implement quickly, given the different regulatory barriers within each EU country. This could prolong the negative downward pressure felt by the most vulnerable industries, such as beverage or machinery.

Nevertheless, there is a latent risk that the EU will use a “carrot and stick” negotiation style with Trump. In this case, the EU would threaten to implement retaliatory tariffs against the US (the stick) if they do not accept the aforementioned trade benefits (the carrot). However, this is a low-likelihood event as it would heighten the risk of further escalation to a full-blown US-EU trade war, harming domestic consumers and industries due to higher prices of imported goods and services.

Scenario 2: Strategic Implementation of Tariffs

The second – and most likely – scenario is that the Trump administration does not levy import tariffs against all countries but instead strategically implements them against certain countries and sectors. Despite Trump’s campaign rhetoric, there are certain instances in which levying a 10-20% tariff would also significantly hinder the US economy’s competitiveness. The most notable example is the Dutch or Taiwanese semiconductor companies ASML and TSMC, respectively, which operate as critical components of the semiconductor industry. In the case of ASML, they are one of the only firms in the world that can design and build the lithography machines necessary for producing semiconductor chips. Meanwhile, 90% of the world’s most advanced semiconductors are produced in Taiwan, mainly through TSMC.  

The Trump administration is unlikely to levy import tariffs on these products as it would likely spur retaliatory tariffs from the EU Bloc. The higher cost of creating and acquiring next-generation semiconductor chips would negatively impact the US domestic technology industry. This could result in Washington losing its strategic advantage in the sector vis-à-vis China, which would constitute a strategic misstep by the Trump administration. As such, the upcoming Trump cabinet is likely to focus its tariffs against sectors – such as the European automotive industry or Chinese technology firms - that could provide it with quick symbolic wins amongst the US voters. This targeted application of Trump’s tariffs would likely provide benefits to several industries – such as Europe’s semiconductor sector – and ensure their continued financial stability during the Trump presidency.