European markets are trending downward and the euro has slid to its worst dip against the US dollar since the 2022 energy crisis in anticipation of Donald Trump’s return to the White House.
Barclays analysts cited by the Financial Times dubbed the Stoxx Europe 600’s poor performance compared to US markets – which soared on news of Trump’s reelection last week, a “Trump premium.”
ING global markets head Chris Turner explained the situation in no uncertain terms: “Investors fear that Europe will be in the front line of the coming trade war.”
“Trump’s not messing around,” Markus Hansen, portfolio manager at Vontobel, a Zurich-based investment management firm, said. “His administration wants to get going on tariffs from day one” and the Europeans “will find themselves in the crossfire.”
The president-elect appeared to confirm as much last week with his reported plans to rehire noted trade hawk Robert Lighthizer as his trade czar. During Trump’s first term, Lighthizer kicked off a trade war with China, strongarmed Canada and Mexico into renegotiating NAFTA, and slapped tariffs of up to 25% on steel and 10% on aluminum imports from much of the world, including Europe.
FT says the specter of new Trump tariffs, combined with China’s growing industrial might, could push European manufacturers deeper into crisis. The latter are already reeling from Brussels’ shortsighted 2022 decision to try to wean the EU off Russian energy, which thrust regional industrial powerhouses into recession and arguably the worst deindustrialization crisis since WWII.
Jeffries investment banking chief European economist Mohit Kumar confirmed to FT that Europe’s poor performance is tied to the fact that its “cheap energy model has been broken” by the Ukraine crisis.
The markets' reaction to Trump's victory echoed a string of pessimistic analyses on Europe's prospects under Trump generally, expecting the president-elect to "test European solidarity on NATO, Ukraine and trade," and prove "2025's disaster" for a Germany lurching "from crisis to crisis."
Representatives of Europe's political class couldn't help but express disdain for Trump following last week's election, with outgoing EU foreign policy chief Josep Borrell telling colleagues in Brussels this week that Trump's victory "is going to have many geopolitical consequences."
"We have to show that we are not afraid or divided - although in reality we surely are, because the reception to President Trump's victory has not been the same in all [European] capitals. In any case, the result will have profound consequences for our bilateral relations. Trump talks about imposing 10% tariffs on all European products. If such a thing were to happen, it would certainly affect our competitiveness," Borrell said.