Europe Braces for Trump: ‘Worst Economic Nightmare Has Come True’

 

"The United States is the biggest trading partner for the European Union and Britain, whose economies could be at risk from the president-elect’s policies.

The outlook for Europe’s economy has been disappointing.

Last week — after Donald J. Trump’s presidential election — it got worse.

Deep uncertainty about the Trump administration’s policies on trade, technology, Ukraine, climate change and more is expected to chill investment and hamstring growth. The launch of a possible tariff war by the United States, the biggest trading partner and closest ally of the European Union and Britain, would hammer major industries like automobiles, pharmaceuticals and machinery.

And the need to raise military spending because of doubts about America’s guarantees in Europe would further strain national budgets and increase deficits.

In addition, the president-elect’s more confrontational attitude toward China could pressure Europe to pick sides or face retribution.

“Europe’s worst economic nightmare has come true,” said Carsten Brzeski, chief economist at the Dutch bank ING. The developments, he warned, could push the eurozone into “a full-blown recession” next year.

With political turmoil in Germany and France, Europe’s two largest economies, this latest blow could hardly come at a worse time.

The same day that Mr. Trump’s victory was announced, the German chancellor, Olaf Scholz, effectively disbanded his coalition government over deep differences about spending priorities and deficits.

For Germany, which is already weathering a second year of recession, the economic challenges posed by another Trump administration are particularly acute. Its economy floundered after Mr Scholz agreed to introduce sanctions on Russia and the flow of cheap Russian gas — a key ingredient in the country’s industrial success — ended.

Germany is struggling on two fronts. Volkswagen, the continent’s biggest automaker and Germany’s largest employer, recently announced that it would probably close plants and lay off workers.

 Competition from Chinese electric cars has already bitten into the sector’s sales overseas and in Europe.

Leaders are torn between placating China or confronting it. The German government last month voted against the European Union’s plan to impose tariffs as high as 45 percent on electric vehicles made in China. Other countries like Spain abstained. A majority approved, and in response, China slapped new duties on European brandy, most of which comes from France.

Tit-for-tat tariffs between the United States and the European Union would further dim the outlook for the auto industry. The United States is the largest market for cars exported from Germany, accounting for nearly 13 percent of the 3.1 million autos that it sold abroad in 2023.

Mr. Trump’s talk during the campaign of making the European Union “pay a big price” for not buying enough American imports and imposing across-the-board tariffs of 10 or 20 percent may be a starting point for negotiations. Yet even analysts who expect him to take more modest steps say targeted duties on the auto industry are likely.

“Many in Europe have not yet fully understood what it means to think about geopolitics and economic policy together,” said Hildegard Müller, president of the German Association of the Automotive Industry.

Higher American tariffs, of course, reach far beyond Germany and the automotive industry to include Novo Nordisk, the pharmaceutical company behind Ozempic, as well as sectors like food, wine, cheese, pearls, chemicals, nuclear reactors, glassware, shoes and more in more than two dozen countries.

Luisa Santos, the deputy director of BusinessEurope, a lobby group representing thousands of companies, warned that tariffs would raise costs and hamper investment.

“We’re still hoping that because of the importance of the economic relationship, they will be reconsidered and we won’t have them,” she said of tariffs. Direct investment from the European Union in the United States totaled $2.4 trillion in 2022, which in turn created more than 3.4 million American jobs, according to the European Union.

Currently, the average U.S. tariff for European imports is around 3 to 4 percent.

Meanwhile, higher U.S. duties on China, another of Mr. Trump’s trade promises, would likely encourage Chinese manufacturers to expand sales outside the United States, heightening competition with rival European producers.

European companies may look to set up or expand production in the United States. Yet any manufacturer that uses materials imported from China would find costs rising no matter where its facilities were.

Vestas, a Danish company and the world’s leading wind turbine maker, said it was already increasing production at its two American plants in Colorado. More than 40 percent of its orders originated in the Americas in the three months that ended in September.

“The world has become different in terms of tariffs,” Henrik Andersen, the company’s chief executive, said on a call with industry analysts last week. Vestas has already had to navigate tariffs that were imposed during the first Trump administration and the Biden administration, he said: “Which is why you try to exclude more and more volumes and more and more components from China origin when it’s about the U.S.”

Tariffs are not the only problem for the wind industry. During the campaign, Mr. Trump pledged to kill offshore wind projects on “Day 1.”

The Danish company Orsted, one of the world’s largest offshore wind developers, is constructing Revolution Wind, a large project off New England, and working on another, Sunrise Wind, for New York.

Mads Nipper, chief executive of Orsted, said on last week that he hoped the need for the huge volumes of clean electricity to power data centers and artificial intelligence would prevail.

“It’s an industry being built from scratch, and it is being very strongly supported by not least the Northeast states, where the alternatives for energy supply and especially green energy supply are difficult,” he said.

Mr. Trump has also said he wants to halt some of the green energy projects that have benefited from the multibillion-dollar industrial policy package passed by Congress in 2022.

The need for a coordinated E.U. response dominated last week’s summit in Budapest.

“The sense of urgency is greater than it was a week ago,” said Mario Draghi, the former Italian prime minister who recently completed a report on European competitiveness.

Mr. Draghi called for increasing yearly public investment by $900 billion to enable Europe to reverse its stagnant economy and compete better with the United States and China.

More important now, he said, is to redouble efforts to link the bloc’s economies with a single capital market and by issuing common debt, proposals that have bred contention.

“Don’t ask what the U.S. can do for you, ask what Europe should do for itself,” Giorgia Meloni, Italy’s prime minister, said at the meeting. “Europe must find a balance. We know what we have to do.”

By the meeting’s end, leaders adopted a declaration promising to ramp up Europe’s competitiveness.

But whether the European Union can turn those sentiments into reality remains an unanswered question given increasing political fragmentation within Europe and the rise of right-wing parties that are skeptical of giving Brussels more power." [1]

 Right-wing parties running Western European countries are the only reasonable exit. Today we have everywhere in the EU the deranged running the asylum and producing only cumbersome regulations and empty declarations.

 

1. Europe Braces for Trump: ‘Worst Economic Nightmare Has Come True’. Cohen, Patricia.  New York Times (Online) New York Times Company. Nov 12, 2024.