Donald Trump’s election win yesterday sent Europe’s markets tumbling, with the DAX posting its steepest single-day decline since August and other stock indices losing gains too.
Why? Well, it’s down to the “most beautiful word in the dictionary – ‘tariff’.”
Like it or not, the controversial 45th president will be transitioning to power in the coming months. He has made clear plans to – once again – put America first and with that, he’s promised tariffs of at least 10% (and up to 20%) on all imports. Import taxes on China could hike up to 60%.
The US is the EU’s biggest trade partner, but Trump doesn’t like international trade deals. Any standing agreements may be renegotiated or cancelled to ensure America’s economy comes first.
Will Trump's trade tariffs work?
But economists have already poo-pooed the potential success of the plan. As seen countless times and across many food and drink sectors globally, any import tariffs implemented by America would likely be met with a tit-for-tat response.
This would increase prices for Americans and would fly directly in the face of the incoming president’s mandate to put America and its citizens first.
Consumers in the States already paid more than any other nation in the first half of the year for EU food and drink imports – €1.5bn more.
The majority of the increase wasn’t down to higher volumes, nor was it due to general price increases. It was largely due to higher production costs of olives and olive oil. So would American consumers and business be willing to pay another 10% on top of that?
Europe’s economies don’t need the additional stress of US tariffs. Most are already experiencing strained growth and are behind the US. Not to mention they're also dealing with additional political pressures from rightwing groups in Germany and France.
Add to that Russia’s continued invasion of the Ukraine – a war that Trump claimed he can resolve within a day – and US import tariffs could cause more than price increases. It could be the start of deeper financial woes worldwide.
European Commission's view on Trump
Europe’s warring political parties might also stop the Union from effectively working together to persuade leniency from Trump.
European Commission president Ursula von der Leyen yesterday, in a congratulatory statement to Trump, reminded the Union and the USA of what is at risk. “Let us work together on a transatlantic partnership,” she said.
“Millions of jobs and billions in trade and investment on each side of the Atlantic depend on the dynamism and stability of our economic relationship.”
The question that remains to be answered, and potentially won’t be for some time, is will Trump see the benefits of the status quo? His voters have made clear they want big change, but as happened with Brexit in the UK, do they know what real change brings?
And that’s just the economy. Trump’s world-shaking (literally) opinions extend to the environment, security and immigration – all having an impact on European consumers and Europe’s food and drink sector.
