What would a second Trump presidency mean for the world?

European leaders are assessing the potential impacts – and structural changes are on the table.

In a room filled with murmured conversations and intense discussions, top European Union (EU) officials are preparing for what could be a seismic shift: The possibility of a Donald Trump presidency in 2024.

With polls now leaning in Trump’s favour, European leaders are assessing potential impacts on trade, defence, and foreign policy. The urgency is palpable as they prepare for the economic ripples that a Trump administration might bring to Europe’s economy.

ADVERTISEMENT CONTINUE READING BELOW Read: US election risk drives dollar hedging costs to 18-month high Inflation, GDP would be same under Harris or Trump, survey says

At the core of these discussions is Trump’s proposed flat 10% tariff on all US imports: A move that could cost the EU up to €150 billion annually in exports to the US. Some analysts expect that, if widespread tariffs are imposed, the euro could drop by as much as 10% against the dollar, impacting businesses reliant on US exports.

This shift could worsen Europe’s growth outlook, which the International Monetary Fund (IMF) has already projected at a modest 1.45% for the coming decade, compared with a stronger 2.29% in the US. As EU officials weigh potential responses, one option is to offer increased imports from the US, delaying retaliation to minimise immediate trade disruption.

For investors, this potential trade volatility underscores the value of diversification.

If Trump’s tariffs strengthen the dollar, US-based assets may present growth opportunities, particularly in sectors tied to domestic production and innovation.

Meanwhile, European export-focused sectors could face challenges, suggesting caution for those with heavy European investments. History shows that political shifts often lead to market volatility but they can also reveal unique opportunities, especially in resilient sectors and US equities that may benefit from a stronger dollar.

The concerns, however, extend beyond economics into security.

Security impact

Trump’s perceived scepticism towards Nato and the potential reduction of US support for Ukraine has alarmed EU leaders, who already provide significant financial aid to Ukraine. Without US arms support, this aid may fall short, pressuring Europe to increase its own defence spending.

European Council President Charles Michel has urged for self-reliance, seeing this as a moment for Europe to strengthen its defence capabilities independently.

Read: Gold nears record with focus on key US Data and election endgame

For investors, this pivot indicates potential growth in European defence and tech sectors, creating opportunities as budgets shift to bolster regional security.

Listen/read: How will the US election result affect South Africa?

Consumer and business sentiment in the US also reflects the political divide, which further complicates economic predictions. Survey data, especially when skewed by political bias, often reveals discrepancies between reported sentiment and actual economic behaviour.

ADVERTISEMENT: CONTINUE READING BELOW

For instance, despite economic resilience, survey pessimism can make data misleading, prompting a need to look beyond sentiment data to real, objective economic indicators.

A changed Europe?

Europe’s response to these challenges goes beyond short-term measures. Structural changes are on the table, including efforts to integrate economies further and to boost productivity in tech and innovation sectors.

The IMF has underscored Europe’s need for business dynamism, particularly in the tech sector, where it lags the US. As Europe prioritises self-sufficiency, there is hope that these changes could enhance long-term growth, particularly with an ageing workforce and ongoing productivity challenges.

For global investors, this evolving situation serves as a reminder of the importance of balanced, adaptable portfolios. As policies shift, so do economic opportunities and risks. Defence industries, US domestic manufacturing, and innovation sectors may see heightened growth potential, while European export sectors could face headwinds.

Remaining informed about these shifts and adaptable in investment strategy is key in times of rapid change.

As Europe braces for possible policy shifts under a Trump administration, this highlights the interconnectedness of global economies. The economic landscape is shaped not only by national policies but also by the strategic responses of other global powers.

Adaptability, vigilance, and strategic investment are crucial when navigating this complex terrain, where each policy decision can echo across borders, influencing economies, industries, and individual investors alike.

Dr Francois Stofberg is a financial well-being economist at the Efficient Group.

Follow Moneyweb’s in-depth finance and business news on WhatsApp here.