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October 29, 2024 - 7:00am
As the likelihood of a Trump victory in next week’s US election rises, the news has slowly started spreading to European stock markets. In particular, shares in companies that depend on exports are getting knocked back by “Trump trade”. No surprise there — Mr. Trump proposes steep tariffs on imports should he be elected once more, and export-dependent economies, most notably Germany, will take their impact on the chin.
To be sure, this may be a case in which it’s best to take Trump both seriously and literally. In a game of trade-negotiation chicken with most of its partners, the US will enjoy the upper hand. Given the comparative strength of the US economy, it can absorb a lot more of the pain of tariffs than those countries from which the former president will try to extract better trade terms.
While across-the-board tariffs of the sort he proposes would raise the US inflation rate and possibly reduce the economy’s long-term growth, the fact that the country’s running a large trade deficit with the rest of the world allows a lot of scope to substitute local production for imports. Politically, such action would go down well with his supporters, as it would create local manufacturing jobs — at least in the short term. Europe, in contrast, already suffering from the weak demand of a sluggish Chinese economy, can ill-afford such a fight.
However, the recent falls in European share prices may be an instance of that old market adage “sell the rumour, buy the news.” Already trading at a steep discount to their American counterparts, Europe’s major stock markets may be pricing in a worst-case scenario, and thereby setting themselves up for a rally after the result comes in. Besides, the outcome of the American election will not be the only bit of news which moves European markets next week. Events taking place on the other side of the world may matter just as much, and possibly even more.
On Monday, the Standing Committee of the National People’s Congress — China’s top law-making body — will gather in Beijing for its weeklong meeting. Economists are watching keenly to see if the government uses the occasion to announce any sort of fiscal stimulus to raise household consumption, something which has been hinted at but whose details have been left to the meeting. If the government delivers a surprise boost to demand, that will somewhat counter-balance the bad news of a Trump victory by providing some relief to European exporters.
In fact, were China to take such bold action at a time its manufacturers are outsourcing some production to countries in southeast Asia, Europe and South America, it could end up drawing its trading partners further into its orbit. A protectionist America could, in these circumstances, end up overplaying its hand.
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SubscribeThe opening premise is false. Shares in European companies that depend on exports are not getting knocked back by “Trump trade”.
European industrial shares have been on downward trend for 5 years. Why? Europe’s manufacturing PMI has been recessionary for 19 months consecutively and has been on average negative for 5 years. Last month’s PMI increase to 45.9 was slightly above expectations so triggered a small buy-back but at less than 50 it is deep in recession territory and so shares are now drifting downwards once again.
Having the highest energy and regulatory costs in the world is forcing German deindustrialisation in absolute terms at the fastest pace in history. VW, BASF, etc are facing huge exceptional costs to close European plants. They at least have the luxury of international plants. The local European supply chain is facing complete destruction.
Speculation about Trump’s future tariffs is nothing compared to the absolute known that European policies are decimating industry. Markets continue to slowly trade out of European manufacturing stocks due to things being done at home, not what’s been said abroad.
Well said! Germany is deindustrialising at a rapid speed. The whole “Mittelstand”, the rock of Germany’s prosperity, is in uproar about suffocating regulatory costs, recently piled on them even more by the governing Green Party, and unaffordable energy costs. Many small and medium size companies are closing shop and bigger companies are trying to move. Big German car companies have already factories in the U.S., but listening to Trump on the Joe Rogan show, he wants to force them to assemble their cars only with parts made in the U.S., and not supplied from Europe.
Free trade. No sanctions. No trade war with China. I’m hoping in many, many years people will see the sense in this. Probably only after we have gone full dystopia. I won’t hold my breath for now.
Can’t the UK and Europe have our own policies? What suits America, does not suit us. If Europe and the UK are bankrupted by bad American foreign policy, the Americans won’t have anybody to export to. A war with China would be a disaster for our economies on this side of the Atlantic, so would a trade war, the sanctions on energy and various other things are a disaster already.
Edit: I will add I am talking about the UK not America. I understand why they need to improve exports and they should do as they please. I don’t see why we have to copy them though.
You do realize Russia and China are in cahoots and a European country is currently being attacked by them?
Yes. Are you aware we didn’t impose sanctions in world war two.
Are you aware a war with China over Taiwan would cause an unprecedented disruption to global trade. Described by our intelligence services as ‘the single biggest business disruption the world has ever seen’.
I don’t think you need to impose sanctions when you are at war.
The problem with “free trade” is that you tend to be supporting things like slavery. So free trade networks are only beneficial amongst socially similar allies.
Reminds me of Koestler dock worker story in darkness at noon. Doesn’t go well for the dock worker.
Britain will only be able to talk to Trump now if Starmer is sacked. In that way the Labour Party can say that Trump was always their man but Starmer got it wrong. He must be sacrificed.
Can we start talking about who will replace Starmer? Will he last for their first full year in power?
Angie?
UK needs a Churchillian figure to counter the threat posed by Trump. Does Starmer fit the bill?
No really we don’t need Churchill. We did that before and I’m pretty sure the UN was set up to stop a massive world conflict from happening again. I don’t know why they bothered, they aren’t exactly doing a great job of that.
Diplomacy and free trade would be much better. It would stop a lot of people from being killed, save us a fortune and generally much less messy than going full Churchill.