The approaching U.S. presidential election may significantly influence the European economy, especially concerning trade and defense, according to a recent report by UBS.
The investment bank’s analysis highlights the growing momentum in the race, particularly following Kamala Harris’s entry, which has seen her campaign outpace Donald Trump’s in areas like fundraising and polling. While the election results remain unpredictable, the potential effects on Europe are becoming more evident.
Regardless of the election outcome, trade is expected to be a critical issue for Europe.
As the European Union’s largest trading partner, any change in U.S. trade policies could have widespread consequences across the continent.
UBS’s report notes, “In any scenario, the likelihood of a significant trade agreement between the EU and the U.S. is minimal.”
Instead, the focus may shift to potential protectionist strategies, especially under a Trump administration, which has proposed drastic measures like a 10% tariff on all imports. Such actions could serve as a bargaining tool to reduce the trade deficit and bolster U.S. manufacturing.
In contrast, a Harris presidency is anticipated to maintain consistency in trade and defense policies, potentially reducing disruption for European investors.
UBS suggests that “a Harris presidency is likely to represent continuity and offer a more predictable approach to defense and trade.” This steadiness could alleviate risks to European economic growth, fostering a more favorable investment climate.
On the defense front, European nations are already preparing for a future where U.S. support may not be as reliable.
The report emphasizes that “regardless of the November election outcome, European countries recognize the need to allocate more resources to their defense.”
This urgency is heightened by recent increases in defense spending due to the energy crisis and the ongoing conflict in Ukraine. A Trump victory might expedite this need, potentially putting more strain on European budgets, while a Harris administration could provide more time for adjustment.
UBS further notes, “If Europe needs to redirect more funds to Ukraine to compensate for diminishing U.S. support, it could lead to additional financial pressure if the conflict continues.”
Even in financially robust nations like Germany, political pressures are raising concerns about Europe’s ability to manage larger-than-usual deficits.
Overall, UBS concludes that the U.S. election is likely to influence the timing of European defense spending rather than its overall direction.
A Trump presidency might accelerate the need for increased spending, while a Harris presidency could allow for more gradual changes. Although immediate spending might strain budgets due to Europe’s limited defense manufacturing capacity, UBS suggests that long-term economic benefits could emerge from increased capacity and innovation in the sector.
